Individual Bankruptcy
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Filed under Bankruptcy
Individual bankruptcy is an effective but drastic way to shield oneself from one’s debtors. Individual bankruptcy occurs when an individual is unable to meet his/her financial obligations mainly due to uncontrollable reasons such as:[br]
- Illness
- Unemployment
- Divorce
The state of bankruptcy involves some debt forgiveness and aims to provide debtors with a fresh start while addressing the issues faced by the creditors.
Types of Individual Bankruptcy
Individual bankruptcy is mainly of two types. In chapter 7 or Liquidation Bankruptcy, a court appointed trustee collects the various assets of the debtors, sells off the ones that are not exempt and pays off the creditors. This form of bankruptcy is resorted to when the debtor has very few assets to dispose off or his earnings potential is quite low.
A more moderate process is prescribed in chapter 13 or Adjustment for Debts Bankruptcy, in which a payment plan is chalked on the basis of the debtor’s future earnings potential. This type of bankruptcy is resorted when the debtor is running behind on his debt repayment or has a collateral debt and the creditor can claim some asset.
Although an individual bankruptcy can be filed by oneself, the best option is to take the help of an attorney who is well versed with the bankruptcy laws. The debtor must ensure that all the information disclosed in the petition is correct and the failure to do so is likely to lead to a rejection of the bankruptcy case and the denial of discharge. With the filing of a bankruptcy petition, an ‘automatic’ stay comes into effect. This means that creditors have to stop all their collection efforts until the issue gets sorted out.[br]
Impact of Individual Bankruptcy
Although bankruptcy can help a person who is facing severe repayment crisis, it puts a question mark on the individual’s credibility. This makes it highly difficult for the person to get debt or loans for the next several years or even if they are available the rates charged are quite high. Also, a bad credit record makes it difficult for an individual to get an insurance cover, a job or maybe a house or an office for rent.
The discharge of a bankruptcy petition means that an individual will not be able to get another discharge for several years.