Bankruptcy - The last option for debt problems
If you are suffering from debt problems and are unable to get out of it through hardship programs or debt relief programs such as credit counseling, debt settlement, debt consolidation, debt management, etc. then you filing bankruptcy can be the right move. If you want to know what bankruptcy is all about and how it can help you, check out the topics given below:
- What is bankruptcy?
- Why do people declare bankruptcy?
- What are the different types of bankruptcies?
- Who can file bankruptcy?
- Does bankruptcy discharge all of your debts?
What is bankruptcy?
Bankruptcy is a federal court procedure that is designed to aid businesses and consumers in wiping out their debts or repaying them under the protection of the bankruptcy court.
Why do people declare bankruptcy?
Here are the 2 reasons why people file bankruptcy:
- Fresh start: Bankruptcy allows you to discharge your debts and have a fresh financial start. You can discharge unsecured debts through Chapter 7 (straight bankruptcy) or Chapter 13 bankruptcy and avoid being sued by the creditors.
- Even when you are not paying the full balances. Individuals who are on the verge of losing their home to foreclosure can often avoid it through Chapter 13 bankruptcy. Moreover, bankruptcy may help you to shed unsecured debts which may allow you to afford secured debts (like car and mortgage payments) you had been struggling with..
- There are many life events and personal reasons that can lead to filing for personal bankruptcy Medical debts are one of the leading contributors to bankruptcy filings. Divorce and failed relationships can lead to overwhelming financial problems. Investments gone bad, poor spending and budgeting habits, and loss of income from layoffs and hours being cut can also lead to bankruptcy.
In the last few years, the number of bankruptcy filings has increased at an alarming rate. In the year 2009, the total number of bankruptcy filing was 1,306,315. Now that's quite a number!! Just look at the table below and check out the number of bankruptcies filed in 2005-2010.
What are the different types of bankruptcies?
The 3 different types of bankruptcies are given below:
- Chapter 7:
Chapter 7 is also known as a straight bankruptcy or liquidation proceeding. This version of bankruptcy may allow you to keep certain types of property Assets you can keep are known as exempt property. The property you must give up is known as non exempt property. When you file a petition for Chapter 7 your unsecured debts (credit cards, medical bills) are discharged.In Chapter 7, any non exempt property you have would be handed over to the court appointed trustee who in turn sells the assets and distributes the cash to the creditors. Know more...
- Chapter 13:
Chapter 13 is also known as a reorganization where you file a repayment plan with the bankruptcy court proposing how you will repay your your creditors. The amount of money you'll have to repay depends on how much you earn, the amount of debt you owe, the types of debt you have, and other assets you own. You will utilize your income to pay off your debts over 3-5 years (most chapter 13's are a 5 year repayment plan), Though your creditors may not receive the full balance of what you owe, you will have the courts protection from a creditor suing you or otherwise trying to collect on any portion you did not pay back after you complete the chapter 13 payment plan.. Find out more...
- Chapter 11:
Chapter 11 bankruptcy is also known as reorganization bankruptcy. This type of bankruptcy helps the businesses/corporations to repay the outstanding loans by reorganizing their debts through negotiation. Reorganization is primarily done by permitting businesses to discard troublesome contracts and to pay the collateral value to the secured creditors. Unsecured creditors can be paid less than the total debt amount. This helps businesses recover from a downturn in receivables, or unprofitable management decisions, allowing the doors to stay open successfully and employees to keep their jobs.
Those who can file bankruptcy are:
Individuals who can file bankruptcy are given below:
- Individuals as well as businesses may file bankruptcy.
- In certain incidents, a creditor (can be a person or business) who owes money through an involuntary procedure may force the filing of a bankruptcy proceeding. However, this is a very rare case.
Does bankruptcy discharge all of your debts?
When you file for chapter 7 bankruptcy the result will be the discharge of all your unsecured debts, and no further legal action can be taken against you on those accounts. Chapter 13 will involve repayment of a portion or all of your debts. Once the chapter 13 plan is completed, any balance that went unpaid will be not be required to be paid (you do have to complete what is typically 5 years of payments to the trustee). Many financial experts advise individuals to avoid bankruptcy There are certainly options to avoid bankruptcy, but there are also very real and immediate reasons to embrace bankruptcy. Making the decision that's right for your unique set of circumstances and the goals you have both now and in the future.