What you should know about Bankruptcy
Bankruptcy is a tool that the federal court has designed to help both businesses and individuals in clearing up their debts. It also provides repayment options under the surveilance of the bankruptcy court. There are two types of options available here - liquidation and reorganization.
Liquidation bankruptcy: As per Chapter 7 of the bankruptcy code, Liquidation bankruptcy happens when one pleads to the court to have your debts discharged. In this case the bank usually liquidates your existing property to recover the value of your debts and then arranges to pay this back to your creditors. In such cases, the proceeds from your liquidation is not enough to clear the total amount of your debt and so the creditors get a pro rata share of the proceeds as final settlement. The court proceedings usually takes around 4-6 months. You only need to make one appearance at the court and this is considerably faster than other court case proceedings. it is a convenient method for those who cannot manage to pay off their debts in totality.
However, Chapter 7 bankruptcy isn’t available to everyone. You cannot avail this option if you have benefited from a bankruptcy discharge in the past 6-8 years. Further, this is allowed or disallowed after proper scrutiny of your income, expenses, and overall debt. After this process the court can very well decide that reorganization bankruptcy is the better option for you; ou cannot resist the court orders if this is the case.
Veterans get the benefit of this type of bankruptcy, if they are are now disabled and had incurred their debt at the time of their active duty. this is an automatic option available to them. Apart from this, people whose debts are caused by running a business are also qualified to apply. Other than these two criteria, people need to meet other set parameters to apply for liquidation bankruptcy.
The parameters have been decided after the new rules of bankruptcy were enforced.
The primary consideration is your current monthly income versus the median income for a family of similar size in your state. Your income is calculated as the average of the past six months before filing for bankruptcy.Social Security benefits like retirement and disability benefits are excluded while computing your income. this is then analyzed to see if it is enough to take care of verified to permitted expenses and payments for child support, tax debts, and others. Based on this analysis it is decided whether you qualify for the other type of bankruptcy, if yes, then you are not allowed to apply for liquidation bankruptcy.
Given the choice, most people would choose Liquidation bankruptcy since you do not have to repay the full debt amount. You do lose your property but courts usually leave something for you to start life afresh again.
Let us now look at reorganization bankruptcy. This falls under Chapter 13. you need to submit a plan to the court on how you intend to settle your debts. You need to provide clear details of how much each of your creditors will get with your available finance options.Usually there is a 3-5 year repayment plan. Beyond this you may get a discharge from the remaining debt if the court thinks that your debt situation is unresolvable.
Under both types of bankruptcy, you need to go for credit counseling to an agency recognized by and approved by the United States Trustee’s office. They help to identify if bankruptcy is essential in the first place. They also guide you with other options to repay your debt. They suggest bankruptcy only in cases where there is little or no means for repayment of the loan.Immaterial of the situation, counseling remains a mandatory requirement. You also require to take up post counseling after the proceedings. Thes courses teach you financial management so that you do not encounter these situations in the future. The bankruptcy discharge is released only after this is completed.
Bankruptcy is a beneficial tool both the debtor and creditor. It gives a chance of recognizing one’s responsibilities and mistakes that caused the irreversible financial difficulty. The entire process takes into consideration both parties’ interests and aims to resolve the issue in an amicable manner. This ultimatel leads to the development of an action plan that fulfils the aim. However, one should take care not to abuse this provision to stay away from paying your dues.
Bankruptcy should be considered only as a last resort.Aim to sort out your financial difficulties through analysing your lifestyle and cutting your exenses first. Discipline yourself and take control of your life. Dont rely on bankruptcy as a quick fix to your debt problems.
Article by Nakagava Ltd., creator of PiggyBob™, the first truly user friendly personal finance and appointment scheduling software. PiggyBob™ is an extremely convenient tool to help you keep track of your income and expenses, plus a very useful printable calendar to record all important events in your life.
