 |
What Is Filing
For Bankruptcy And Is It a Way Out of
Debt?
Bankruptcy is a proceeding made in court by those who feel they
cannot repay their creditors. This results in a court judgment that
decides what a person should or shouldn’t pay back.
There are three types of Bankruptcy named after the Chapters in the
corresponding Code.
Chapter 7 – is liquidation of a person’s assets, also known as
‘straight’ bankruptcy. This is where someone liquidates or sells all
their assets and distributes the money to the creditors or lenders.
The outstanding debts which are left after liquidation are those
that cannot be discharged after bankruptcy such as child support,
alimony etc. Tax also has to be paid after filing for bankruptcy
although payments can be stopped while the bankruptcy claim is being
made.
Chapter 11 – This is a reorganization of a debtor’s assets and
payments. This enables a person to remain in business such as those
in commercial enterprises, retain their assets and have their
finances reorganized by the courts.
Chapter 13 – This is where a person that owes creditors or lenders
have to make a plan to repay them over a period of time of no longer
than 5 years. The creditors, courts and the trustee will review the
plan and either approve it or request the period is shortened. This
is available to those who have unsecured loans such as credit card
debts of up to $100,000 or mortgage loans up to $350,000. The amount
which has to be repaid must equal that which would normally be
repaid under a Chapter 7 filing and consider what the person’s
income was.
Filing under Chapter 13 means that the person who is filing for
bankruptcy can keep much of their property and assets although the
bankruptcy claim would still appear on their credit history. Filing
under Chapter 13 also means that the debtor is kept to their
repayment plan and if they fail to repay the debts at the end of the
term then the creditors can file bankruptcy under Chapter 7.
So is this a way out of debt? This depends entirely on the financial
situation a person is in. After filing for bankruptcy you may be
able to relieve yourself of a lot of financial debt. However, you
may also lose most of what you own in the process.
Filing for bankruptcy leaves a mark on a person’s credit history
that can make it extremely difficult to get credit from lenders.
Bankruptcy can be a formal way for a person to take control of their
finances so that they can repay their creditors over a longer period
of time. It can feel like relieve after struggling with debt for so
long, but it can also be a financial burden that makes rebuilding
you credit a long uphill struggle.
|
