How to Handle Bankruptcy

Overview of Bankruptcy

Bankruptcy in modern terms, is a legal status of an individual or organization, when incapable of paying back debts to creditors. The meaning of the word hasn’t changed much compared to its origins: the word bankruptcy comes from ancient latin, meaning broken bench or table. This neology is used, because bankers had benches at public markets, where they wrote bills of exchange and lent money. When a banker had to shut down business, he or she broke the bench or table, to display the businesses condition to the public.

Filing for Bankruptcy

The process begins, when a debtor files for a petition, because of incapability to pay debts towards creditors. The case is handled by a bankruptcy court and governed by the Federal Rules of Bankruptcy Procedure. There is one of these courts in every judicial district, within these the bankruptcy judge is granted with the decision-making power. However if there are no objections during the process, the debtors involvement will be minimal. Once someone files for a claim, most or all available assets will be measured and evaluated, then used to repay part of the debt.

Most Common Types of Bankruptcy

– Chapter 7: also referred to as straight bankruptcy, these cases usually run quickly, because the debtor doesn’t have many assets that can be liquidated.

– Chapter 9: provides reorganization (is similar to chapter 11, however only municipalities can file for it).

– Chapter 11: entitled Reorganization, used when a business wants to continue operating, however they need to restructure and reorganize debt payments, this has to be approved by the court.

– Chapter 13: Adjustment of Debts of an Individual With Regular Income, this is usually preferred to chapter 7, because it allows the debtor to keep a valuable asset, in most cases his or her house.

Downside of Filing for Bankruptcy

After filing for bankruptcy, an individual or a business has a chance for a fresh start, because a large burden has been removed. This can be a huge advantage, however most tend to underestimate the downside when filing for bankruptcy. For starters it will be visible on ones credit record for 7 to 10 years, depending what was filed for. This means, that getting a loan will be much harder and if possible, the conditions won’t be too appealing.

It can also have a huge impact on the one filing for a bankruptcy. Psychologists state it amongst the top 5 life-altering negative effects, along with divorce, severe illness, disability or loosing a loved one. Although it seemingly can’t be compared to loosing a family member, it can cause the loss of self confidence and even lead to depression.

Bankruptcy might seem like a good way to start from scratch, but it isn’t the best or even the only option in most cases. Consulting with a professional and considering restructuring debt can occasionally solve the problem, this way the aftermath of a bankruptcy can be avoided.

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