Declaring bankruptcy
Bankruptcy refers to the legal declaration done by an individual or company of being unable to pay their creditors. Bankruptcy can be declared by individual, company or creditor. In U.S cases of bankruptcy are handled by federal court. Bankruptcy cases cannot be filed in state court. All the 94 federal judicial districts take care of bankruptcy matters.
Different provisions of bankruptcy laws:
Chapter 7 : The people who are unemployed or badly in debt use provision of chapter 7 to initiate bankruptcy
Chapter 13: It is preferred in case debtor has some property which cannot be completely exempted and he/she still wants to keep it. In this condition debtor proposes a plan to repay within 3- 5 years
Chapter 11: It is mainly used by those businesses who want to reorganize business and repay debts
Chapter 12 : It was established for farmers but is no longer active
Declaring Bankruptcy
Only an insolvent can declare a bankruptcy. Insolvent is defined as the person
who owns at least $ 1000
Who fails to clear all his bills and payments even by using all his assets.
Who fails to meet all his regular payments even after due date.
Bankruptcy declaration begins with filling petition in court of bankruptcy.
Filing petition creates estate of bankruptcy. The bankruptcy estate consists of all assets. In case of chapter 7 or 11 a separate entity is created. This is taxable entity. The tax obligations vary from chapter to chapter. In case of forgiveness the amount forgiven is considered as income and is taxable. But in case of debt cancellation amount cancelled is not considered as income.
System of filling petition:
File the petition for bankruptcy in federal court of your area.
File all information regarding assets and liabilities.
Submit all statement of finances.
Submit a schedule of income and expenses.
Submit tax return of the last financial year.
Submit a certificate of credit counseling.
Submit a schedule of executory contract.
Submit the fees. The total fee in this case is $209, $155 as filing fee, $39 as administration fee, and a $15 as trustee fee. Court can waive this fee if the total income of debtor is below 150% of poverty line.
All the information is needed to be filled in the prescribed form, the form can be purchased from a stationery shop or can be downloaded from net. To fill the form you should have the complete list of all creditors with the amount due, all the sources of income and expenses like food, clothing rent, medical expenses etc and list of all assets. Along with form, debtor also needs to file the schedule of "exempt" property. The debtor can consult federal laws and an attorney to determine the exemptions available.
If only one of the spouse is filling the petition for bankruptcy than also while filling the form the income and expenses of the non-filing spouse is also required to evaluate household's financial position.
Pros of declaring Bankruptcy:
According to U.S state constitution bankruptcy is a privilege.It adjusts between debtors and creditors. Many debts are forgiven. Most of the property is sold to repay creditors. Debtors are allowed to keep some property known as exempt item. Creditors can receive nothing or entirely. Some people consider that bankruptcy reduces the stress as loan repayment is done by trustee. Bankruptcy helps the debtor to go for a fresh start in life.
Cons of declaring bankruptcy:
For every financial difficulty or crunch declaring bankruptcy is not a solution. Bankruptcy brings lot of problems with itself. Bankruptcy stays on your credit report for 10 years.It may make difficult or very expensive to get credit in the future. Declaring bankruptcy should be considered as the last option. It should be considered only if no asset, equity or property is left. Before declaring bankruptcy try to find any alternate solution. Try to restructure all your bills and payments. Try reconsidering your debts. Try to manipulate with the available finances and bills. Restructure your loans, monthly expenses, interest rates and repayment term of loan. Try to take some more time from your creditor. You cannot file bankruptcy, more than once in 6 years. Some people consider bankruptcy as stigma as they can be considered as runaway from debts. There is also property and reputation loss.
Important points for declaring Bankruptcy:
Before declaring bankruptcy try to take advice from non profit organizations offering credit and debit counseling.
Always take assistance from a licensed bankruptcy trustee.
The person applying for bankruptcy is supposed to pay trustee. In case if you fail to do so you can take assistance of the Office of the Superintendent of Bankruptcy
For filling bankruptcy you have to consider all your creditors even your family members and friends. You can not leave any creditor.
Filling bankruptcy stops bill collectors from calling and taking any action against debtors.
Students loans are usually not discharged from bankruptcy. They can be discharged only if loan is neither insured nor guaranteed by a government.
The co signer or guarantor is fully responsible to repay the creditors in case of bankruptcy.
Some of the duties of bankruptcy includes submit to the trustee all books, records, documents and prepare and submit a statement of the bankrupt's affairs on the affidavit showing the particulars of the bankrupt's assets and liabilities along the name of all creditors.
Condition of declaring bankruptcy arises only if you ignore the signs of debt problems. You keep on spending and cross the spending limit, use your credit card more often than you can repay. You borrow money from your relatives, friends or take loan to repay bills and payments. You just pay interest of loan and not try to reduce the original amount. If you are overlooking any of these signs than you are sure to face bankruptcy.
Other Articles
