Bankruptcy is a process wherein businesses or individuals can publically announce their inability to pay the bills, which will help them evade their debt. This legal process helps them to make a fresh start fiscally by liquidating their assets to pay the debts or they can go for a repayment plan.
However, declaring bankruptcy could affect the future credit, your self-image and reputation. Also, it is quite challenging to re-establish the credit and secure loans when someone files for bankruptcy. Nevertheless, it provides a breathing space for those buried in debt.
- Missed debt payments, repossessions, defaults and lawsuits will affect your credit, which is definitely more complicated to clarify to a lender in the future than bankruptcy
- You can get away from paying your old tax liabilities
- You cannot avoid student loan debt. However, declaring bankruptcy prevents the lenders from taking any aggressive action
- It allows you to start afresh
- Most of the things you own is exempt from bankruptcy
- Once bankruptcy is declared, the dreaded letters and phone calls demanding payment will stop.
- The tax liability is non-dischargeable
- You will lose the credit cards
- Bankruptcy will ruin the credit, at least for some time
- It is an embarrassment and admission of defeat
- Mortgaging is nearly impossible, if you declare bankruptcy
- You will lose your luxury possessions
- You need to explain to the trustee or judge how you were trapped in the financial mess
Types of Bankruptcy
The six types of bankruptcy are as follows –
- Chapter 7 – The process annihilates several debts owned. It also allows liquidation of some assets, which will help in repaying a few of the commitments
- Chapter 9 – Accessible to municipalities like towns, counties, school districts, municipal utilities, taxing districts, villages, and cities to restructure certain liabilities
- Chapter 11 – This is used by several businesses in debt to keep the project alive by planning to pay the creditors in due course.
- Chapter 12 – Allows the fishermen and farmers, who are financially troubled to propose and complete a plan, so that they can pay back their arrears.
- Chapter 13 – Allows those in monetary difficulty to keep the property and pay their debts over time
- Chapter 15 – This is the recent addition, which addresses issues related to international bankruptcy
Filing for Bankruptcy
A debtor has to appoint an attorney, who will help them through the entire process. Besides explaining the rules, they also assist them in filling proper forms. There are more than sixty types of filing forms, which debtors have to sift through. Besides, a number of bureaucratic forms might also have to be used.
After the bankruptcy court accepts the forms, a stay is enacted. This will protect the defaulter from collection attempts. Once the filing process is completed, debtors must start with the financial education training.
Following this, the debtor has to appear in the court, where he has to answer questions related to the liabilities and assets. The creditors will determine which assets to be sold to pay the creditors.
Businesses must appoint an attorney to file a case. For more information on how to get on with the filing of bankruptcy cases visit the site – thebklawyers.com. Bankruptcy is a serious and complicated process, so before considering this option, one should cautiously weigh the gains and drawbacks to determine, if this is required to get a firm financial footing.