Where an individual or legal entity can no longer afford to service or repay their debts, a state of bankruptcy exists. In light of the recent economic downturn many people are looking to find out how to claim bankruptcy. Here are a few of the advantages and disadvantages of filing.
It is not always the individual themself who files for bankruptcy. In some situations a creditor can file what is called a bankruptcy order against the individual who owes money. This will proceed whether the individual likes it or not.
When claiming bankruptcy it is now a legal requirement that consumer credit counselling is undertaken, to ensure that the individual is entering this state of affairs only as a last resort.
What are the advantages and disadvantages of bankruptcy?
Probably the most attractive advantage of filing bankruptcy is the fact that, under chapter 7, an individual emerges debt free. True, some debt cannot legally be written off, such as alimony or government tax to name two, but the majority of debt is removed, allowing a fresh start.
There are two downsides to this however.
The first and most difficult is the fact that virtually all your worldly goods are sold and the money disbursed amongst your creditors, leaving you with very little.
The second is that although any remaining debt is cancelled, those who you have not repaid in full will likely as not, be very reluctant to engage in any financial activity with you in the future.
This may not necessarily be the case though, as the above refers to the chapter 7 bankruptcy laws.
Anyone filing for bankruptcy now has to complete a financial means test.
There is also an examination of your income over the past 6 months, and if it is found to be above the median income for a family of the same size as yours in the same state, and you fail the means test, you are in elligible for chapter 7 bankruptcy. In this case one would normally file chapter 13 bankruptcy.
The advantages of the chapter 13 bankruptcy rules are that you do not have to sell any of your personal assets, and that your creditors are paid in full by way of a repayment plan, over 3 – 5 years.
The repayment plan under chapter 13 is arrived at after a series of complex tests which can sometimes serve to inflate the true amount of an individual’s earnings, making the repayments rather high as a proportion of income. This can be quite difficult.
As far as an individual’s credit score is concerned, chapter 13 stays on record for 7 years and chapter 7 for 10 years.
To read additional free inTo readmation on how to claim bankruptcy and the different chapters and how they work, go to www.howtoclaimbankruptcy.net Get a totally unique version of this article from our article submission service
