A judge in the U.S. District Court for the Northern District of California has ruled that if a business is going through a Chapter 13 bankruptcy, it need not find a place in its credit reports, especially if the process is still pending. The ruling covers only cases where the bankruptcy is ongoing and not yet completed. It does not include cases where the bankruptcy has happened in the past or where such cases have been dismissed or discharged. This recent court case is revealing some interesting facts surrounding the results Chapter 13 bankruptcy not required on credit reports.
Chapter 13 Bankruptcy Not Required on Credit Reports
The whole point of chapter 13 is the restructuring of a business. It can last between 3 to 5 years. Unlike a chapter 7 that guarantees liquidation of all assets where all creditors will be paid off, chapter 13 gives way for repayment under a new structure.
A chapter 13 is also not one that is discharged immediately. It is done only after the debtor has created a proper restructuring plan and have it approved. The process is long and tedious, taking anywhere between 36 to 60 months to complete. It is during this period that the ruling comes to effect. If the business has a need to make credit reports in this time, they need not have the pending chapter 13 show up on their reports. The ruling reasoned that a mere filing for a chapter 13 did not guarantee a discharge. The act of filing, according to the judge, does not alter the legal status of the debt. If the payment plan is not in line with chapter 13 requirements, it may be dismissed and the status of the debts will return to the same position it was before the bankruptcy was filed.
The case where the ruling was passed is the Reckelhoff v. Experian Info. Sols, Inc. (2017).
If you are considering debt relief options, contact a Rocklin bankruptcy lawyer. They can discuss your options and how they could impact your credit. Make an educated decision about your financial future.