Declaring bankruptcy is when your debts are unmanageable or facing foreclosure. It is a legal process judged by federal bankruptcy courts. A court proceeding in which a judge and court trustee examine the assets and liabilities of individuals and businesses with debts so oppressive that they have become unable to repay.
Bankruptcy is a complex process involving rigid rules and regulations that govern bankruptcy proceedings.
Who declares themselves Bankrupt?
Bankruptcy is generally considered the final solution for people who have far more debts and see no way to pay their bills.
In 2019, 70% of the bankruptcy cases were from real estate companies. The filers owed $116 billion and had assets of $83.6 billion. This is surprising to know that individuals are filing for bankruptcy cases, not businesses. They owe money for a mortgage, credit card debt, auto loan, or student loan and don’t have the income to pay for it.
Pros and Cons of Bankruptcy
Below are some of the Pros of filing for bankruptcy
1. Granting Full Discharge
Discharge means the debts are forgiven, and the individual is no longer responsible for them. If individuals have been unable to pay your bills, they may be able to have these debts legally waived.
Another alternative is to file for Chapter 13, which allows them to reorganize the debts and consolidate them into a single monthly payment.
2. Granting an Automatic Stay
If you are granted an automatic stay, it means the creditors will not be able to chase payments or take actions against the payee until the bankruptcy is discharged or a repayment plan is finalized.
3. Appointment of Representative
A trustee is appointed who will closely examine the case until the case is disposed of. They act as catalysts, handling all the communication between payee and creditor.
4. Prevention Against Further Legal Action
It would prevent future legal trouble that is related to the non-payment of the debt.
5. Give a fresh start
Bankruptcy can potentially provide a much-needed clean chit to rebuild your financial life and healthily re-establish your credit.
Below are some of the Cons of filing for bankruptcy
1. Heavy Costs:
Filing for bankruptcy is a highly expensive affair. With filing fees, bankruptcy trustees fees, credit counseling fees, and attorney fees, they can really add up the bankruptcy cost.
2. Lengthy Process
A Chapter 7 bankruptcy is quite quick and typically discharges within a few months, whereas Chapter 13 bankruptcy is a much longer process. Filing for bankruptcy can last for more than 10 years. Significantly it becomes more challenging to secure a loan in the future.
3. Loss of Business
If you have owned a business and the trustee can determine its value, they can be forced to sell them. In some instances, the trustee may operate the business until its sale.
4. Drop in your credit score
There could be a significant drop in your credit card score.
5. Loose value of assets
The equity of the assets like home, car, and other items are lost.
Alternatives to Bankruptcy
The coronavirus pandemic has affected business in many ways, but they still make moves to protect their financial future. Filing for bankruptcy will erase many bills. Bankruptcy might be a good option when one is clashing with debts.
Credit/Debt Counselling & Debt Management Plans
Debt counseling is the best way to manage your debts. The debt management plan helps make regular payments to the credit counseling company, making payments on your behalf to the creditors.
Debt Settlement
Debt settlement may be an option If the debt is severely controllable. In debt settlement
Creditors can forgive a portion of the debt, whereas, in debt management plans, the entire debt needs to pay off.
Liquidating Assets
Selling or liquidating an asset allows us to pay off the debts quickly and easily.
Debt Consolidation Loan
Get hassle-free payments to several creditors using debt consolidation loans. A home equity loan is a way to repay creditors.
Conclusion
Bankruptcy only after they pursue debt management, debt consolidation loan, and most people consider liquidating Assets. These options can help them resolve all the finances back on track and won't negatively impact your credit score. Regardless of what type of debt relief to choose, always take better care of your credit immediately by putting simple, responsible, credit-positive actions into practice.
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