What is Bankruptcy?

POSTED : August 19, 2021

Filing for bankruptcy can provide relief from overwhelming debt. Filing for bankruptcy means that a person or business is unable to pay their outstanding debt.  The process of filing for bankruptcy involves meeting with a judge and coming up with a payment schedule. The court can also write off some debts.

When business files for bankruptcy, the business continues to operate and reduces payments to creditors, or shuts down. Getting legal information on bankruptcy can help identify the benefits and limits of each kind of bankruptcy.

Filing Bankruptcy

Before filing for bankruptcy, it is important to understand the consequences of being bankrupt. The court instructs that the debtor is relieved from certain personal liabilities.  This is done through a court order. The debtor is also shielded from creditors and debt collectors. This protects him from harassing communication. The unfortunate part is that the credit score takes a big negative hit which takes a long time to restore. This constrains financial options for the debtor as few lenders are willing to work with a bankrupt person.

Chapter 7 vs. Chapter 13 Bankruptcy

Bankruptcy is defined by chapters according to the filing entity. Chapter 7 bankruptcy applies to individuals and spouses. Chapter 13 bankruptcy applies to individuals who have large assets but these assets cannot cover the debts owed by the individual. More info on chapter 13 bankruptcy here.

Is it good?

It is important to account for some factors while filing for bankruptcy. You should assess the size of your credit card debt which is dischargeable, and weigh if the discharge is worth the financial constraints you will face. You should also consider the effect of the bankruptcy on accounts you have co-signed.  Consider too how your property including cars and home will be protected.

Tax debts

Filing for bankruptcy does not relieve an individual from paying taxes. Federal tax will apply after the bankruptcy is over. Individuals who file for Chapter 7 bankruptcy stand better chances of having some kinds of taxes discharged.

Get a bankruptcy attorney

It is highly advisable to get legal advice when filing for bankruptcy. Although a lawyer is not needed for every bankruptcy case, legal assistance can help avoid legal oversights that may delay your bankruptcy declaration. A skilled lawyer will negotiate with the court on your behalf for friendlier discharge and more relief from debts.

A lawyer will also help you process the complex paperwork involved in filing for bankruptcy.  The lawyer will ensure that your rights are protected and that you keep crucial assets like the house and cars.

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