What is bankruptcy?
Is it a phase in your financial life or a permanent stain that can haunt your financial ordeals for a long time?
Bankruptcy can affect your life in so many ways – both bad and good.
Knowing what bankruptcy really is and how it can build or ruin you financially is important.
It’ll help you assess if it’s the best solution for you.
What is Bankruptcy? | Breaking Down the Facts and Reality
What is Bankruptcy Exactly?
There’s more to it than just the legal definition of the word.
If you are considering filing, you need to understand how bankruptcies work.
It is not just a legal petition you can jump into to repay a long-standing debt.
Fact: Bankruptcy is a legal petition from a person or business having a hard time repaying their debt.
How It Works: Filers can either liquidate assets to pay off their debts or provide a reorganization plan to pay off debt.
Pros: Bankruptcy lets you start anew after getting rid of debt.
- It will leave an indelible mark on your financial health.
- It damages your credit score and remains on your credit report for at least seven years.
- It may cause you to lose properties.
- It may disqualify you from having another bankruptcy in the future.
Who Can File Bankruptcy?
Anyone can file for bankruptcy. But you need to fulfill the requirements and qualify before reaping its benefits.
If you’re in deep financial turmoil, a bankruptcy could be the ideal solution.
If you are willing to pay your debts but have a hard time keeping up with the payments can benefit from filing bankruptcy.
When to Declare Bankruptcy?
There is no ideal time to declare bankruptcy.
It all depends on the current financial and emotional state of a debtor.
So, when is the right time to file bankruptcy?
- It’s practical to file bankruptcy if your personal life, health, and family are affected by your financial difficulties.
- If you’re being harassed by debtors and face the possibility of foreclosure, you might want to consider filing.
Bankruptcy may allow you to keep your small business, keep you sane, or save a relationship.
When is Filing Bankruptcy Not a Smart Choice?
It’s not advisable to file for a bankruptcy if you’re planning to escape your debtors.
This is fraud and is very different from relieving yourself from unmanageable debt.
It may also throw you out of court.
The court will dismiss your case and collect fines and penalties. The amount will depend on the severity of your bankruptcy fraud.
In severe cases, it can escalate into a criminal prosecution.
Your debts will remain. And the courts will have power over your assets.
You will have to liquidate them so you can pay off your creditors.
In the worst case scenario, you’ll have to spend time in jail.
What are Some Debts That Can’t be Covered By Bankruptcies?
Bankruptcy doesn’t set you free from all financial obligations.
Here’s a list of debts not covered by bankruptcy:
- Educational loans
- Secured debts such as car purchases and jewelry
- Income tax liabilities
- Restitution due to financial loss or injury
- Child support
- Ex-spouse legal fees
Wall Street Survivor shares the basic concepts about bankruptcy in this video:
If you’re thinking of filing bankruptcy, consider other options first.
Bankruptcy has a negative effect on your credit score. It’ll be included in your credit report for several years.
Look at other options, like debt consolidation, before jumping into bankruptcy.
Because this will affect your financial credibility for a long time, bankruptcy should always be a last resort.
Have you ever considered filing for bankruptcy? Share your stories in your comments section!