What They Never Tell You About Bankruptcy
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Filed under Bankruptcy
Bankruptcy is essentially the declaration of an inability to repay outstanding debts. This declaration can be made by an individual against his/her personal or business obligations. Declaration of bankruptcy results in either complete exemption from debt payment or reduction of the outstanding amount. Before declaring insolvency, one must learn about bankruptcy and seek the assistance of an accountant or lawyer for the filing procedure.[br]
About Bankruptcy: To File or Not To File
Although the idea of discarding debt obligations seems extremely compelling, bankruptcy should only be considered as a last resort. This is because a bankruptcy record has a lingering negative impact on a person’s credit report, leading to difficulties in:
- Acquiring loans and credit cards
- Getting insurance
- Purchasing or renting a house
- Finding a job
Thus, one must consider alternatives to declaring bankruptcy, the simplest being negotiation with creditors to reduce the amount of debt. Several non-profit debt counseling agencies provide assistance with such negotiations. Selling assets for debt settlement is also a prudent option.
However, bankruptcy becomes the only option in the following cases:
- When liabilities exceed the available assets
- When wages have been garnished
- When unsecured debts constitute majority of the credit
- When creditors are unwilling to negotiate or have filed a lawsuit
- When faced with repossession or foreclosure
About Bankruptcy: Filing Options[br]
Having decided to file for bankruptcy, an individual can opt for either of two alternatives:
- Chapter 13: This allows individuals with a steady income to retain some properties, such as a mortgaged home or a car, which are generally seized during bankruptcy proceedings. To qualify for Chapter 13, an individual has to approve a repayment plan established by the relevant court. Depending on the extent of debt, an individual has to pay a part or the entire amount of the debt.
- Chapter 7: This facilitates the discharging of almost the entire debt, without any repayment agreements. However, under Chapter 7, all non-exempt properties are collected and sold by a government appointed trustee, the proceeds of which are advanced to the creditors.
Although both options have a negative impact on a person’s financial standing, Chapter 13 bankruptcy is considered a superior alternative. This is because while Chapter 7 bankruptcy stays on the credit report for at least 10 years, Chapter 13 bankruptcy is removed after 7 years.