Bankruptcy: When to file one
The federal court has designed a process by which a consumer or a business can eliminate their debts. This also helps them repay their debts under the bankruptcy court. Bankruptcy helps the debtors cancel many of their debts through a court order.
With bankruptcy the creditors have a fair chance of getting a designated share of money that the debtors can afford to pay instead of not paying at all. As soon as a debtor files for bankruptcy, all attempts to collect money must be stopped at least temporarily. After you file for bankruptcy usually there is immediate relief because the creditors stop calling. Most of the times, in such a case the creditors cannot call, write or sue you.
Types of bankruptcy
Bankruptcy can be filed using two main procedures:
- Chapter 7 bankruptcy: This is the type mostly used by individuals. A trustee appointed by the court will collect your assets, sell them for cash and distributes it to the creditors. You can file a chapter 7 bankruptcy only once in six years.
- Chapter 13 bankruptcy: This procedure is designed for debtors who have a secure job and a standard income. This procedure allows you (the debtor) to pay off the debts over a period of 3-5 years and you also get to keep your property. There is a confirmation hearing where your appeal for such a plan may either be approved or disapproved. A debtor may file Chapter 13 any time.
Another type of bankruptcy that you can file is Chapter 11 reorganizations. But chapter 11 bankruptcy is usually used by the businesses. For farmers there is Chapter 12.
After you file bankruptcy
Once you have filed bankruptcy, you will have a meeting with all your creditors to discuss your bankruptcy. All your creditors may not attend the meeting, but the trustee will definitely be there. The trustee will then review the papers that have been submitted. The property that you have not designated to be exempt is then given to the trustee for liquidation.
From here begins the process of selling your assets in order that you can pay your creditors. You cannot sell, give away or throw any property that you own without the permission of the bankruptcy court. You can usually obtain a discharge in 4-6 months of filing bankruptcy. However, until you obtain a discharge you can back out of the bankruptcy and get it dismissed.
To file or not to file bankruptcy
You shouldn’t opt for bankruptcy if:
- You already filed bankruptcy within the last 6 years or filed a petition in the last 180 days and it got dismissed.
- You are the owner of your home or a costly car and resident of state with poor bankruptcy exemptions.
- If you have given incorrect information on an application for loan or ran up a substantial amount of money on loans in the last few months.
- If you ran up a substantial amount of debt in the last few months even when you knew you did not have the means to pay back.
- If you have a debt that mostly is non-dischargeable.
- You are a partner in a joint venture business or if you manage a corporation.
Although it may sound easy in reality it is not so. Some of you may think that if you can’t replay your bills and debts, you can escape by filing bankruptcy. Bankruptcy may be filed when no other option is available. But you must remember that filing bankruptcy brings a big change in your lifestyle. File for bankruptcy keeping all the pros and cons in mind.
Useful Resource :
Finance Articles – From this site you will get all types of financial articles.
How to File Bankruptcy – Information and resources about filing for bankruptcy and other bankruptcy related topics.