Debt is an unbearable situation for anyone, and often, we do not know how to get out of it. Bankruptcy is a legal way to deal with too many loans, which has brutal consequences. This paper examines the meaning of bankruptcy, its significance, and the options that may be needed by a person in a situation of financial difficulties.
Personal Bankruptcy?
Personal bankruptcy refers to a legal process designed to offer a debtor relief when he is not able to pay his debts. It refers to a legal proceeding where assets are sold off, or debts are reorganized, giving the affected person a new status free of those rules. The major disadvantage of bankruptcy is that it is a measure that is able to discharge or reduce some debts. However, as it should be understood, this measure can exert a negative influence on credit and financial history for years.
Types of Personal Bankruptcy
- Chapter 7 Bankruptcy Or liquidation bankruptcy includes selling the property not protected by the law or exempt by the debtor. Many unsecured debts, like credit card debt, outstanding hospital treatment bills, and other creditors, have been removed.
- Chapter 13 Bankruptcy Or reorganization bankruptcy allows individuals earning ordinary income to make a plan in which they can repay debts in the next 3 to 5 years. They are making installment payments on their debts.
The Bankruptcy Filing Procedure
- Assessing Eligibility: Before filing, applicants have to fulfill the “means test” to determine whether they would file for Chapter 7 or Chapter 13.
- Credit Counseling: Credit counseling is compulsory before filing; it must be under an organization accredited by the government.
- Filing the Petition: The complete financial declarations with the court comprising income and expenses, assets, and liabilities are to be submitted.
- Automatic Stay: It stops all collection activities immediately, like foreclosure, garnishments of wages, and calls from creditors.
- Court Proceedings: The court chooses a trustee to handle the case, sell assets, or clear a repayment plan.
- Debt Discharge: By the end of the process, the valid debts are forgiven, relieving individuals to pay.
Outcomes of Filing for Bankruptcy
Although its a financial strain, there are profound implications:
- Credit Score Damage: A bankruptcy can stay on credit reports for 7-10 years; one can not take a loan or credit.
- Loss of Assets: Chapter 7 allows for selling assets that are not protected from liquidation to pay your creditors.
- Public Record: Bankruptcy filings are a kind of public record which could impact personal and professional credibility.
- Cost: A major drawback of filing for bankruptcy is that it costs a lot of money to cover the lawyer and court fees.
Alternatives to Bankruptcy
Before filing for bankruptcy, think about these options:
- Debt Consolidation: Bundling credit obligations into one loan with a lower interest rate is also an efficient way to pay the debts.
- Debt Settlement: Always settle for a deal to minimize the outstanding balance.
- Budgeting and Expense Management: Develop a strict spending plan to reduce expenses and channel the remaining money to pay the debt.
- Credit Counseling: Discuss with certified credit counselors to explore repayment plans or communicate with creditors.
- Family Support: Sometimes, borrowing money from relatives or friends may act as relief from debt stress for some time.
