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Bankruptcy - The Final Solution for A Debt Problem

An individual or a corporation may face a situation where his debts become insurmountable. If your debts suddenly seem to be getting the better of you and you are unable to find a solution through such measures as debt settlement, credit counselling, debt management or hardship programs, filing for bankruptcy might be the only solution left for you. Here's everything you need to know about bankruptcy and whether it is suitable for you or not.

Bankruptcy - What It Means?

The declaration of bankruptcy involves a legal process. It is designed to help out both individuals and corporations who are under insurmountable debts. The procedure either absolves the individual of all debts or helps him repay a portion of it under a bank administered plan.

Who Can Opt for Bankruptcy?

A number of reasons might force an individual or a company into bankruptcy procedures:

  • A bankruptcy declaration lets you make a fresh start by absolving you of unpaid debts. Both chapter7and 13 deal with provisions by which a person or a corporation can discharge himself of his debts. People who consider this as a last resort are usually people who are facing the threat of legal action because of their unpaid debts.
  • Some are people who are facing a foreclosure on their homes. A bankruptcy declaration might help these people out. This is where another advantage comes in the people are absolved of their unsecured debts. They can now devote themselves to paying off secured debts.
  • A number of people file for personal bankruptcy because of a variety of reasons. The following are just a few of them:
    1. A number of people opt for this because of huge medical payments they have had to incur.
    2. A costly divorce or other failed relationships are also a leading cause.
    3. Some people opt for bankruptcy because of bad investments, loss of income or even inadequate spending habits.

The number of bankruptcy cases has been increasing in the last few years.

The Different Types of Bankruptcies

There are 3 different categories of bankruptcies. Both individuals and corporations can declare bankruptcy under the following categories:

  • Chapter7
  • This is also known as a liquidation proceeding or straight bankruptcy. Unlike other types of bankruptcy, you are usually allowed to retain a part of your property. This is known as exempt property. Assets that are outside this limit are called non-exempt property. Once you file for a bankruptcy under chapter7, all your unsecured debts are dissolved. The non exempt property you have is given over to a trustee who is appointed by the court. He will sell these assets and the proceeds are disbursed to your creditors.

  • Chapter11
  • This is also referred to as a reorganisation bankruptcy. The process involves a negotiation whereby corporations decide on an amount that can be viably paid back to its creditors. It is usually done by correcting difficult contracts so that the company is able to repay at least a portion of its debt to secured creditors. Unsecured creditors are sometimes paid just a part of their dues. It facilitates a faster recovery for businesses that have suffered owing to unforeseen circumstances and/or incompetent decisions. It helps a company get some breathing space and allows employees to keep their jobs.

  • Chapter13
  • When you file for bankruptcy under this clause, you will have to put forward a repayment plan to the court. The court will decide on an amount that you will have to repay. It will base its decision after calculating your income and your total debt. Once this figure is arrived at, you will use your income for the next 5 years to repay the amount that has been decided. You will not be paying off your debts to all the creditors of course-but you will be protected from litigation on the unpaid amount of the debts after the payment plan has been completed.

Can Bankruptcy Absolve You of All Debts?

If you file for a bankruptcy under chapter 7, you will be absolved of all your unsecured debts. No legal action may be taken against you for your debts under those accounts. If you file for it under Chapter 13 you will have to pay off a part of your debts. Once you pay off the amount you had committed to under the plan, you will not be required to pay off the balance. Normally, you will have to complete payments for the next 5 years to the trustee.

Who Can File For Bankruptcy?

If you are an individual, you can file for bankruptcy under the following conditions:

  • You are faced with insurmountable debts, and you have little possibility of paying it back.
  • Sometimes, a creditor may force an individual to these proceedings if he involuntarily owes money.

When you're considering bankruptcy proceedings, you will find few financial experts encouraging you. However, your condition right now may make it imperative for you to go for it. Consider your particular condition in detail only that will help you make the best decision.

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