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What is Bankruptcy?

Bankruptcy is a court proceeding in which a judge and court trustee examine the assets and liabilities of individuals and businesses who can’t pay their bills and decide whether to discharge those debts so they are no longer legally required to pay them.

Like if you take loan from bank or any other organization who gives you money for some kind of investment like home loan, education loan or business loan, this kind of loan you can take from bank and bank asked for security and they give exchange money for some security paper or take your home paper or something that if you can’t pay back to bank they fines of your property that is Bankruptcy.

Bankruptcy laws were written to give people whose finances collapsed, a chance to start over. Whether it was bad decision-making or bad luck, lawmakers could see that in a capitalistic economy, consumers and businesses who failed, need a second chance.

Who Declares Bankruptcy

The individuals and business who file for bankruptcy have far more debts than money to cover them and don’t see that changing anytime soon. In 2015, bankruptcy filers owed $113 billion and had assets of $77 billion, most of that being real estate holdings, whose real value is debatable.

What is surprising is that people – not businesses – are the ones most often seeking help. They have taken on financial obligations like a mortgage, auto loan or student loan – or perhaps all three! – and don’t have the income to pay for it. There were 844,495 bankruptcy cases filed in 2015, and 97% of them (819,760) were filed by individuals.

Only 24,375 bankruptcy cases were filed by businesses in 2015.

When Should I Declare Bankruptcy?

There is no “perfect” time for filing bankruptcy, but there is a good rule of thumb to keep in mind when you’re considering it: If it is going to take more than five years for you to pay off all your debts, it might be time to declare bankruptcy.

The thinking behind this is that the bankruptcy code was set up to give people a second chance, not to punish them. If some combination of mortgage debt, credit card debt, medical bills and student loans has devastated you financially and you don’t see that picture changing, bankruptcy might be the best answer.

Other possible debt-relief choices include a debt management program or debt settlement, but both of those typically need 3-5 years to reach a resolution and neither one guarantees all your debts will be settled when you finish.

Why Would You Declare Bankruptcy?

The primary reason for declaring bankruptcy is to start all over again with a clean slate.

However, there is a secondary reason for filing that might ease some of the tension related to your problems. Declaring bankruptcy will stop the badgering phone calls, letters and other attempts to contact and collect from you.

Legally, it’s referred to as “the automatic stay.” It means that creditors are prohibited from filing a lawsuit against you or entering liens against your property or constantly contacting you in an effort to get a payment on the debt. It also stops things like eviction, utility disconnection, and wage garnishments.

Bankruptcy in the United States

Like the economy, there is a rise and fall to bankruptcy filings in the U.S. In fact, the two are as connected as peanut butter and jelly.

Bankruptcy peaked with just over two million filings in 2005. That is the same year the Bankruptcy Abuse Prevention and Consumer Protection Act was passed. That law was meant to stem the tide of consumers and businesses too eager to simply walk away from their debts.

The number of filings dropped 70% in 2006 to just 617,660, but then the economy tanked and bankruptcy filings increased rapidly to 1.6 million in 2010. They retreated again as the economy improved and have gone down 50% through 2016.

How to File for Bankruptcy

It starts with compiling all your financial records – debts, assets, income, expenses – and listing them. This not only gives you a better understanding of your situation but also gives anyone helping you (and eventually the court) a better understanding.

The next step is to receive credit counseling within 180 days before filing your case. This is required step. You must obtain counseling from an approved provider listed on the United States Courts website. Most counseling agencies offer this service online or over the phone.

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Source: LawSumo.com