Filing for bankruptcy doesn’t necessarily mean the end of the world. Find out what it really means and how it can be used to get back on your feet, financially.
Meaning
We’ve read news about how this person or company has filed for bankruptcy, but what does that exactly mean? Bankruptcy is basically a legal status where a person or company is protected from all creditor action. A court will decide that this entity is no longer capable the debts he owes his creditors. The debtor often initiates the filing of this case.
Types of Bankruptcy
There are three types of bankruptcy: Chapter 7, Chapter 11 and Chapter 13.
Chapter 7 - also known as straight bankruptcy. This status basically removes all credit card debts and other bills like medical and utility bills. It is considered as the simplest bankruptcy form available.
Chapter 11 – bankruptcy form often available to business entities where financial reorganization and rehabilitation still allow companies to function as they go through debt repayment plans. It is also known as corporate bankruptcy.
Chapter 13 – also known as the wage earner bankruptcy. This is basically a repayment plan for mortgage and credit card debt available for those individuals with a regular source of income.
What happens when someone files for bankruptcy?
This means that is a person or company has been having a hard time paying monthly bills, they can have a repayment plan drafted with their creditors and the creditors will have to accept and follow this. This means the harassment through phone calls and letters will stop and the mortgage company will not foreclose their property. Filing for bankruptcy doesn’t necessarily mean the end of the world. Basically one gets to keep his home, his car and his retirement funds. With diligent planning, one can get back on their feet within two years, yes even get back their former excellent credit rating.
What does one have to do to file bankruptcy?
A basic tip before filing for bankruptcy is consult with a lawyer. Sure, one can file on their own but this is not recommended. There have been changes in the law and some misinterpretations can be made by individuals not really familiar with it. Just gather copies of bills, mortgage statements and most recent tax returns. These will help the attorney have a basic idea of one’s financial condition and can plan where to go from there.
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