The content is accurate at the time of publication and is subject to change.
Hearing the word bankruptcy at first can be very ominous for most people especially to those who have experienced it or know someone else who did. It is a very big word in finance talk and more likely than not, is not understood by most people. It is imperative that people who have financial problems and troubles with different payments should know the fact about bankruptcy. Credit card holders should also know what this means since they are also likely to experience this if they fail to pay their credit card companies.
What is bankruptcy?
Basically, bankruptcy is a declaration made by someone who cannot fully pay all his/her debts to her creditors. It is a legal way in settling the debts made by a person by means of agreements and repayment plans. This is a time consuming process and deep knowledge or advice is needed to get through. A bankruptcy court will take into consideration everything that the debtor has in possession and divides it as payment for the creditors.
Who should file for bankruptcy?
A person who is incapable of paying all debts and credits must file for bankruptcy in order to keep some of his/her assets depending on the type of bankruptcy he/she is going to apply for. The bankruptcy court will also protect the debtor from different factors such as lawsuits, garnishments, sudden repossession of assets and etc. Bankruptcy can also make breathing room for the debtor to pay for his/her debts in a more systematic way in which he/she and the court can carefully trace the repayment to the creditors. Although, clauses in the contract of a bankruptcy court will give certain limits and rules in the repayment process. Failure to pay as scheduled can cause repossession of properties and assets and sudden discharges from creditors.
What are the advantages of filing for bankruptcy?
As said earlier, it can help a person with financial problems to make time for payment of the debts and credits. It can be regulated by a court and usually, legal advice and measures should be taken when dealing with bankruptcy. Bankruptcy protects the debtor and the creditor since the creditor should pay the debts and credits while the bank protects the debtor from sudden discharges and repossessions made by the creditors.
What are the disadvantages of bankruptcy?
Limits on personal living spending will be given by the court since the person will be required to pay all repayments on schedule. This means payments should be made without interruptions. Credit history will also suffer since bankruptcy can be seen on credit history for 10 years or so and 20 years in court history. Also, applying for a certain type of bankruptcy can also make the debtor pay almost 50% more of the debts and credits. Financial capabilities will also be hindered by bankruptcy since all bank accounts, credit cards; loans will be greatly affected by the declaration of bankruptcy.
Why do people file for bankruptcy?
People have different reasons in filing for bankruptcy. One of the main reasons is that the income is lesser than the debt and spending. People who file for bankruptcy have a hard time at paying their debts because they spend too much than what they can pay for and end up having piles of debt on them. Other different reasons are sickness, divorce, credit cards and unemployment. Credit cards and unemployment are also big contributors to the rise of bankruptcy cases.
These are just some need-to-know things about bankruptcy. Getting an in depth knowledge will take greater time and professional help, especially when it comes to the legal aspects and specifications of the process.
