What Are the Consequences of Bankruptcy?
Some businesses and economic ventures end as huge successes. However, some would be more beneficial to close down than end up bleeding dry. In most cases where the company’s assets and cashflow could no longer pay for its staggering debts, the most logical solution is to file for bankruptcy. But before you file for this action, you have to know what bankruptcy entails and what are the different types of bankruptcy.
What is bankruptcy?
In layman’s language, bankruptcy is an action filed when a person, business entity, or corporation can no longer pay its debts. The definition may sound simple, but the entire process is anything but straightforward. It’s a complex process that can be done seamlessly with the help of a bankruptcy attorney.
Besides proving that you don’t have the financial capacity to repay your debts, you must also prove that you have gone through credit counseling with a government-specified credit counselor. Your appointed counselor will assess your financial situation, offer bankruptcy alternatives, and assist in creating a budget plan. If you insist on filing for bankruptcy after the consultation, you will now choose if you’re filing for such an action under Chapter 7 or 13 of the Bankruptcy Code.
Chapter 7 Bankruptcy
The consequences of bankruptcy would largely depend on which Chapter you’re filing such a petition. Individuals, partnerships, corporations, and other business entities can file for bankruptcy under Chapter 7. An individual filing for such a petition has to comply with more stringent conditions before advancing his cause. The purpose of this type of proceeding is to exempt the person or business entity from paying certain types of debts, enabling him/it to have a fresh start.
Under this chapter, you will still be required to appoint a court trustee responsible for supervising the sale of your non-exempted assets like household furnishings, work-related tools, and cars). All the proceeds of the sale will go to your creditors. If there is still balance left, the same will be eliminated as soon as your petition is discharged. However, this type of bankruptcy couldn’t get you out of certain debts like student loans, taxes, child support, and alimony. You will still be required to pay for these.
The consequences of Chapter 7 bankruptcy are noteworthy. Firstly, you can lose your properties since it could be used to satisfy your debts. Secondly, negative information might also be written in your credit report, and the same could stay there for ten years after the bankruptcy action has been filed. Lastly, this action can only be used once every eight years. Meaning to say, if you get caught in the spider web of debts again, you can only use this legal remedy eight years after you first availed it.
Chapter 13 Bankruptcy
When you’re looking for a bankruptcy option with less severe repercussions, you might want to consider filing for one under Chapter 13. This alternative to Chapter 7 works differently in the sense that you’re allowed to keep your properties. In exchange, you have to wholly or partially repay your debts and obligations. Hiring a seasoned Tulsa bankruptcy lawyer is a must here because your legal counsel will be the one to negotiate better repayment terms with the bankruptcy court on your behalf.
In most cases, those filing under Chapter 13 bankruptcy are given three to five years to repay their debts. The exact amount or percentage of the debt you have to pay depends on what has been approved during the negotiation. Your lawyer may lobby for paying part or all of the debt within the agreed period. Your debts will only be discharged the moment you completed paying according to the approved debt repayment plan.
Indeed, any bankruptcy petition would negatively affect your credit score, but you have a better chance at settling for an ideal option with Chapter 13. Since you agreed to pay part or whole of your debts, you can still retain your assets. Aside from that, a petition filed under Chapter 13 cycles off one’s credit report only after seven years. You can also file for the same petition within two years should you find yourself struggling with debt repayments again.
Some people think that when they have so much debt, it’s the end of the world for them. While this situation is less than desirable and depressing, it’s not one that you couldn’t get out of. With the help of a seasoned bankruptcy attorney, you can rearrange your finances and start all over with a clean slate.