Bankruptcy or a proper court order may occur at the brink of insolvency when a person becomes unable to pay his bills and fulfill the obligations or pay debt owned by him. Bankruptcy is a legal process and one can file bankruptcy on their own or can be declared bankrupt on the petition of any or all the creditors. After filing for bankruptcy, the person declared bankrupt becomes exonerated from almost all of his liabilities and needs to take a fresh start while getting some breathing space from the pestering of creditors and the same breathing place is perhaps the only benefit of filing for bankruptcy. As going for bankruptcy does not solve all the problems at once and can be a hectic, complex, and long procedure, therefore following aspects must be kept in mind and should be evaluated critically before going for a bankruptcy filing.
Types of Personal bankruptcy (with relevant legal provisions).
· Chapter 7 of Title 11 of the US Code:
Under this chapter bankruptcy filing means all of your assets will be liquidated and some exceptions including automobile, personal items, Clothing tools, pensions, social security, and other public benefits are exempted from the liquidation process. All the remaining assets of a person shall be sold by a trustee and the proceeds may be distributed among the creditors usually, people with low-income opt for filing bankruptcy under chapter 7. This means the individual needs to be qualified for filing bankruptcy by filling out forms called official forms 122A-2 and 122A-1.
· Chapter 13 of Title 11 of the US Code:
Filing bankruptcy under this chapter does not require your assets to be sold and the person is allowed to retain his assets but he has to pay the debt in due course of time (three to five years). This allows him to buy time against foreclosures or property seizures.
Filing bankruptcy can have a great drastic impact on your credit report and can remain up to seven to ten years on your credit report. So, the following things must be kept in mind before filing bankruptcy.
CONSULTATION WITH A CREDIT EXPERT (CREDIT COUNSELLING AGENCIES)
You should be probing for other opportunities before finally opting for a bankruptcy filing. For example, you may consult some credit counseling agency that may guide you in a better way and which is easier than filing bankruptcy on your own.
· Avoid impulsive spending. Keep your retirement account intact.
Before filing for bankruptcy, you must avoid spending open-handedly as it may put a question mark on your eligibility as being bankrupt.
· Filing bankruptcy does not exonerate you completely.
One must keep strictly in mind that filing bankruptcy does not mean that one is completely exonerated from all of his paying obligations. Student loans, child support, and taxes cannot be eradicated in bankruptcy.
- You may lose your nonexempt properties depending on the nature of the personal bankruptcy you have filed.
Depending on the type of bankruptcy you have filed, you may lose all your assets. This happens when you file for bankruptcy under chapter 7.
- A lengthy period
It may take a long time to decide the bankruptcy proceedings. It is not possible that your financial crisis may end over a night after filing for bankruptcy.
- Cost-effective and multiplex
Filing a Bankruptcy may include hiring a bankrupt expert lawyer and can be a complex procedure.
- Effect on credit reports and credit scores.
Filing bankruptcy or allowing yourself to be declared bankrupt may have a negative impact on your credit scores and credit reports which may last longer than you think and may put a question mark on your creditworthiness.