Bankruptcy is a situation where a person or legal entity can no longer repay or service their debt. With the recent economic downturn many people have been caught out by finding themselves in a situation where not only can they not afford to repay their debt, they cannot afford to pay the interest. This has meant that many are now looking to find out how to claim bankruptcy.
It is not always the individual themself who files for bankruptcy. In some situations a creditor can file what is called a bankruptcy order against the individual who owes money. This will proceed whether the individual likes it or not.
Claiming bankruptcy should only be entered into as a last resort, and all avenues should be explored before taking this final step.
So what are the pros and cons of Bankruptcy?
The most popular chapter to file bankruptcy under is chapter 7, where an individual has all debt taken away. Not all debt can be written off however, and if the main contributor to the bankruptcy is debt that has to be repaid, a chapter 13 bankruptcy is the more appropriate chapter.
There are a couple of disadvantages with this however.
The first and most difficult is the fact that virtually all your worldly goods are sold and the money disbursed amongst your creditors, leaving you with very little.
The other downside is that those who have had financial dealings with you in the past, if, after selling all your possessions are still out of pocket, are unlikely to want to have any financial dealings with you in future.
This may not necessarily be the case though, as the above refers to the chapter 7 bankruptcy laws.
Anyone filing for bankruptcy now has to complete a financial means test.
In addition, your income is examined and if, over the 6 months prior to filing, your income is more than the median in your state for a family of your size (and you fail the means test), you cannot claim chapter 7 and are pushed into chapter 13.
Chapter 13 bankruptcy rules make an individual repay all debt according to an agreed repayment plan over 3-5 years. No assets are sold.
The main disadvantage of Chapter 13 bankruptcy rules is that the repayment schedule can be pretty harsh. The means test is complex and government has it’s own definitions for “allowable expenses”, “disposable income” etc, which can often serve to make your income appear higher than it is, and making a repayment plan quite difficult.
A chapter 7 bankruptcy stays on one’s credit record for 10 years, chapter 13, 7 years.
Should you require more free inShould you requiremation on how to claim bankruptcy and the different chapters and how they work, visit www.howtoclaimbankruptcy.net Get a totally unique version of this article from our article submission service
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