Personal Bankruptcy – When It Makes Financial Sense To File Bankruptcy
Personal Bankruptcy When It Makes Financial Sense To File Bankruptcy
It is common that individuals consider filing a bankruptcy application a shameful act. They do not realize that getting frequent telephone calls from banks demanding immediate payment on defaulted credit cards or other loans is more shameful and stressful too. The intention of the bankruptcy law is not to squeeze the person of all his assets and bank balance. It is in fact an opportunity given to the debtor to clear all his debt to the best possible extent and start with a clean slate.
How to file a personal bankruptcy application:
Applications have to be filed through an attorney along with the details of the creditors and the details of the assets held, etc. The application is filed under Chapter 7 and Chapter 13 of the Bankruptcy Act.
Chapter 7:
When application is filed under Chapter 7, the applicant has an obligation to liquidate the assets and then hand over the proceeds to the court. The court will appoint a trustee who takes possession of these proceeds. The trustee apportions the proceeds to various creditors in an appropriate manner. As per Chapter 7, some of the assets are exempt from the proceedings both under federal and state law.
Chapter 13:
The procedure of filing the application is same as in Chapter 7. However under Chapter 13 there is no exemption to assets which come under the purview of Bankruptcy provisions. But the debtor makes a deal with the creditor wherein he would buy some time which is spread over some years during which he would repay the entire debt. Here the settlement would work only if the debtor adheres to the time schedule described in the settlement.
The philosophy of settlement:
The basic foundation on which the settlement is worked depends on the declaration given by the debtor. The debtor has to furnish details of all his assets and liabilities without any cover up or demur. Once the application is taken note of by the court, the parties have to stop transacting amongst themselves. Whatever legal notices issues by the creditor to the debtor or any other correspondence which has taken place amongst them in regard to the loan amount becomes irrelevant. Ultimately what prevails is the settlement declared by the court.