What Is Bankruptcy? – Important Points You Need to Understand

March 20, 2012 by  Filed under: Bankruptcy 

Bankruptcy is often associated with failure and poverty, and it is something that everybody hopes to avoid. However, sometimes, things are beyond your control, and you may find yourself having to decide whether you should file for bankruptcy or not. Bankruptcy can happen because of misfortune or misconduct, and you can go bankrupt due to no fault of your own. In itself, bankruptcy is not a bad thing, because it provides a way for you to get rid of your debts. It is actually a solution to financial problems that already exist, and it is not the cause of those problems. In fact, considering the dire financial situation that you may be facing, things can get much worse if you do not declare bankruptcy.

Bankruptcy is a legal option that is available to individuals and businesses that are unable to pay off their outstanding debts. After you file for bankruptcy, you are required to meet with a judge, who may order for most or all of your debts to be discharged or give you a new payment schedule. Businesses that declare bankruptcy may be ordered to discontinue operation or make reduced payments to their creditors. Bankruptcy can be filed by almost anyone, and it can be voluntary or involuntary. Voluntary bankruptcy is filed by the debtor, while involuntary bankruptcy is initiated by the creditor.

While filing for bankruptcy can free you from your financial obligations and give you a fresh start, it comes with unfavorable consequences as well. Usually, you will lose control of your assets after you declare bankruptcy, and your assets will be used for settling your debts. Depending on which state you file for bankruptcy in, you may be allowed to keep your principal residence only, or several assets that are needed for starting over, which include your principal residence, vehicle, and others. Additionally, you will also lose the privilege of getting credit, unless the lender specifically agrees to it. It may also be more difficult for you to find employment after you have declared bankruptcy. If you are filing for bankruptcy for the first time, the discharge period is usually less than one year, but this can vary greatly from one case to another.

The process of going bankrupt involves substantial paperwork and legal procedures. First of all, you are required to file a petition with your local bankruptcy court. The purpose of this petition is to declare that you are no longer able to meet your financial obligations. To complete the petition process, you have to fill out a bankruptcy petition form and pay filing and administrative fees. Other than filing a petition, you are also required to declare the state of your affairs. To do so, you need to submit a complete list of your assets, debts, and creditors to the court. The list should include the names and addresses of all your creditors, as well as the amounts that are being claimed. Along with the state of affairs, you have to provide a declaration stating that you will take an oath before a certified court officer.

Jason Kay recommends finding a competent bankruptcy lawyer before filing for bankruptcy protection.

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