Bankruptcy is a legal process where by individuals or business firms can get a fresh financial beginning when they are in financial turmoil such that they are not able to repay their debts. All the existing debts or parts of the debts are eliminated and or by stretching out the monthly payments under the supervision and protection of a court.
The debtor gets a chance to either eliminate or reorganize his debts by either the sale of assets or following a repayment plan.
How a person is made bankrupt
A person can be made bankrupt either voluntarily or involuntarily. Voluntarily is where by the debtor applies for the order himself while involuntarily as the case where the creditors owed money over a certain minimum can apply for the order.
The order can still be made whether you refuse to acknowledge the proceedings or refuse to agree with them. There is need to cooperate fully once the proceedings have started. In any case where you dispute the claims of a creditor, you are entitled to try and reach a settlement before the bankruptcy petition is heard. It is rather difficult and expensive to try to reach a settlement after the order is heard.
What are the types of bankruptcy?
There are two types of orders which can be filed depending on the financial situation of a consumer. These types are Chapter 7 and chapter 13. Chapter 7 provides for a discharge of debts no more than once in every eight years while chapter 13 takes three to sixty months. Chapter 7 is usually completed faster as compared to chapter 13 mostly about four to six months.
The chapter 13 process begins with filing a two-page petition and then paying a fee. The applicant is given a docket number and subsequently all the actions of creditors are stopped except those that are allowed by a bankruptcy court motion. The list and addresses of all creditors are then submitted to the court. A document containing the list of all your assets, liabilities, incomes, expenses and past financial history is submitted. This also includes a detailed plan of how you plan to reorganize and evidence that you are capable completing the plan.
What are the advantages?
There are some advantages accrued to an individual after declaring himself bankrupt. A person gets a chance to rebuild his financial status especially credit. One can get a chance to retain some basic assets including cooking equipments, furniture and in some cases even the vehicles. After finalizing the proceedings the creditors are not allowed to knock on your door again seeking their money. Application of Chapter 7 may also improve your credit records for it allows for the discharge of debts for no more than once every eight years.
A person, after finalizing the order application, is saved from the harassment of banks and other financial organizations seeking to have their loans repaid. When you apply for this order, you are basically trying to obtain a court shield from these situations and you are protected by an attorney through out the period. This gives you peace of mind and in some cases a possible automatic discharge in a year or less.
What are the disadvantages?
Once you are declared bankrupt, your future in the credit market will automatically be jeopardized. Lenders will be afraid of lending you money lest they risk the same to be repeated. All your credit cards are surrendered and you cannot purchase anything in credit. In most cases, most of your assets are repossessed by your creditors hence you end up loosing them.
Your public image will also be jeopardized since your name will remain in court records and it will also be published in newspapers stating that you are bankrupt. You might face legal proceedings if illegal financial dealings are established from your records. Filing this order does not completely write off all debts; debts like student loans, child support, alimony and spousal support cannot be gotten rid by the order.
How can it be avoided?
When you cannot keep up with the minimum payments on your debts, you might consider debt resettlement program where you can negotiate with your creditors to reduce your current debt balance by some percentage. A debt consolidation program enables one to make single monthly bill payments at reduced interest rates.
The services of a credit counseling agency or a debt management company can help you reduce your penalties and interest rates. Pay day consolidation is also an option if you are struggling with pay day loans where you consolidate and replace multiple pay day loans with monthly payments that are affordable.
Your financial future and bankruptc
You can start building your credit immediately the order is over. Details showing that you are bankrupt stays on credit report for 10 years and it will stay whether you change your mind and apply for a withdrawal but it will read as a dismissal. It is good to start establishing a positive credit report by paying all debts in time every time. One can rebuild credit by obtaining a secured credit card which entails paying first before spending.