A bankrupt person can be defined as one who is not able to pay back his debts. It is the procedure according to which a person, a municipality or a corporation is freed from its liability for debts by initiating arrangements approved by the court for partial repayment.
According to the bankruptcy law in order to be declared bankrupt the court is required to issue a bankruptcy order against the individual. This can be prompted by three reasons. One can apply to the court in case he is not able to pay back his debts and declare himself bankrupt. One’s creditors can also apply to the court to make the individual bankrupt. Moreover when you break the terms of your individual voluntary arrangement then a practitioner of insolvency can also apply to make you bankrupt.
Types of Bankruptcy
There are 2 main types of bankruptcy for individuals, which are referred to as chapter 7 and chapter 13. The chapter 7 bankruptcy would require one to liquidate all his non exempt assets in order to pay off the creditors. It can be a good option when one has a huge amount of unsecured debt like credit card bills, medical bills with little or no income. The chapter 13 bankruptcy would reorganize your debt by making use of a plan for repayment. Declaring bankruptcy is considered a viable option for people with income who wants to avoid the process of foreclosure of his properties or for people who needs some time to cope-up with an enormous debt.
Advantages and Disadvantages of Filing Bankruptcy
One of the uncontested advantages of filing a bankruptcy is an ‘automatic stay’ order which would make one’s creditors aware that they need to stop attempting to collect money from the individual. The ‘automatic stay’ would prohibit your creditors from any attempts at recollection of money like calling you, send you letters of collections, appropriate your wages, confiscate your assets etc. In case your bankruptcy case is successful then the court would be issuing a complete discharge for certain debts which imply that you don’t need to pay it off.
Though making all your creditors vanish might sound as a dream come true for many of us yet it should be mentioned that filing a bankruptcy also has its darker side. In most cases the court won’t be discharging debts for student’s loan, child support, alimony, or mortgages. Moreover one can even lose his non exempt property in a bankruptcy in case the court orders to sell it. Declaration of bankruptcy can also be lethal to your score of credit, given that your score is already on the lower side since you are lagging behind in your loan and bill payments. After the filing of a bankruptcy the national credit report agencies would be showing it on your credit report. A chapter 7, bankruptcy can remain in your report for up to 10 years while a chapter 13 bankruptcy would continue to show on your credit report for 7 years. Though it would enable you to get rid of your creditors, a bankruptcy on your credit report has far reaching implications. Firstly it would prevent you from qualifying from further loans and credit cards. Moreover it can be used against you by individuals or companies who evaluate their potential customers, employees or tenants.
Some Facts and Myths About Declaring Bankruptcy
• One needs to remember that he would be required to pay a fee, go through credit counseling and finally submit a whole lot of legal paperwork in order to be declared bankrupt by the court.
• Contrary to the widely believed notion that bankruptcy can only be filed once, the fact remains that one can surely file a bankruptcy more than once in his lifetime. One would be discharged from a chapter 7, bankruptcy every eight years and a discharge from a chapter 13 bankruptcy can be obtained every 2 years.
• Filing a bankruptcy will never affect the credit of your spouse in case the debt is in your name. But in case you are trying to take care of a debt which involves both the names then the bankruptcy should be filed together. Otherwise the payment would be demanded by the creditors from the entire amount of the non filing spouse.
• Regardless of what your creditor says you never need to land up in jail for non repayment of debts. You might be sued, taken to court with your properties foreclosed, your wages might be garnished but a creditor doesn’t have the right to send you to prison.
• The common myth that bankruptcy is expensive is a false one. The maximum filing fees of bankruptcy is $300. However you need to spend some money on an efficient attorney whose fees can range from $2000 – $4000 depending on your situation.
Go for Professional Help
You can definitely file a bankruptcy on your own but it is always suggested that you go for some professional help since bankruptcy laws can get very complicated. A professional bankruptcy lawyers would ease out all the legal hassles and provide you with efficient way outs from the worst situations. The recent amendments in bankruptcy law have made it way more complicated to grasp for an ordinary man. An experienced bankruptcy attorney can help you choose the best bankruptcy option for you. Moreover he can also show you effective ways of avoiding a bankruptcy with the help of bankruptcy alternatives like renegotiation of unsecured and personal loans, debt negotiation etc. Moreover the foreclosure laws are extremely complex and an experienced bankruptcy attorney can represent your case in a way which would make sure that your loss of asset is minimum. They would properly understand your problems and explain you all the legal and financial procedures. It is common knowledge that filing bankruptcy can disrupt your normal life and therefore you should make sure to choose an efficient experienced and qualified lawyer to represent you. Though the fee of the lawyer can sometimes be exorbitant it is worthwhile to remember that in the long run your expenses would rack up in the form of penalties and interests which would prove to be extremely detrimental to your economic future.