The hilarious thing I have heard about life is don’t plan it all. Instead, let life surprise you a little. Amazement is the spice of life, without a doubt. But it ceases to become interesting when one of the little surprises you have to deal with is bankruptcy.
Being bankrupt is equivalent to opening a can of worms in your life. There is never a moment of peace when you are swimming in debts. And the mother tragedy is that creditors are not going easy on you. So your only choice is to file a claim for bankruptcy and rebuild your life from scratch.
What Is Bankruptcy?
Bankruptcy is a process through a legal framework giving relief to individuals or businesses unable to service their debts. The process undertaken in a court of law forfeits debts that an entity cannot pay to creditors. However, repayment is partly made from the assets the bankrupt person has. They waive the rest, marking the beginning of a new chapter.
Why Do People File For Bankruptcy?
There are five main reasons why people file for bankruptcy, the most common being unemployment. Secondly, overspending and unprecedented occurrences such as sickness are common, as well as divorce and addiction. Here are more details.
1. Unemployment
So, less income resulting from unemployment has led to many people filing for bankruptcy. Several surveys conducted indicate that at least 40 percent of filers are out of jobs. As a result, they can no longer pay their bills or service their debts with little or no income at all.
2. Overspending
It is estimated that 25 percent of filers have a history of squandering everything and seeking relief after that. Before seeking protection, credit cards undergo thorough financial abuse as a result of bad spending habits. As soon as life gets more complicated, they turn to bankruptcy in a bid to pay off their debts.
3. Sickness
When health insurance covers are drained, and you have to dig deep in your pocket, disaster sets in. I have seen people who have sold everything to foot medical bills, plunging them into a crisis financially. However, only 19 percent of such cases are filed.
4. Divorce
Surprisingly, divorce accounts for 9% of bankruptcy filers, with the theory behind it being increased financial struggle on individuals. When child support and housing are involved, the financial muscle quickly dwindles because of additional responsibilities with no increased income. Before you know it, you are also servicing debts incurred while in marriage, such as mortgage payment, car loan, or credit card. Thus, filing for relief remains the only viable option to start afresh.
5. Addiction
On extreme levels, gambling and drug abuse drive you to an abyss of a financial crisis. Addicts have a history of draining their savings and selling property to satisfy their gambling or drug habits. But, at the end of it all, the script ends no differently than being hard up.
Can You Make Money Through Bankruptcy?
Many lenders are oblivious of a goldmine that is the thriving claims trading market. Creditors have a legally approved window where they can engage in selling a bankruptcy claim. By law, you can transact the sale of a claim once it is filed with the court for bankruptcy. Therefore, you look out for a claim with less risk to make your purchase or sale.
How To File A Claim For Bankruptcy
After assessing your situation, you can make the bold move and file for bankruptcy voluntarily. Nevertheless, if you owe a creditor and you make no payment, they can go to court and order you to be declared bankrupt.
The first step you take to be allowed to file a claim is undergoing credit counseling to which certification of attendance is issued. An assessment is made on your financial discipline, debt management, and budgeting during the counseling session. An alternative to a bankruptcy claim is also explored before a certificate is issued in filing the claim.
An actual petition for bankruptcy requires one to submit financial statements highlighting debts, assets, and current income and file under Chapter 7 bankruptcy. Fill a means test form showing how much income is streaming in. It determines if the petition goes through or not.
Once it goes through, Chapter 7 bankruptcy invokes powers that sell your assets and pay up creditors from the amount raised. Four months after the petition, they send a notice of discharge, and it is time to start a new life. However, a record of your creditworthiness remains active for ten years. Also, sell all your property off in Chapter 7 bankruptcy.
On the other hand, you can file for Chapter 13 bankruptcy if you do not want some of your property sold off. Again, a good bankruptcy lawyer comes in handy. You fill in the necessary forms and file the petition to arrange a meeting between you and lenders. Here, they ask more about your financial status and if there are plans to pay them.
The case then goes to a judge for determination while taking a debtor education course to be discharged. This course covers financial management and budgeting, to which a certificate is issued and presented in court as proof of cooperation.
Chapter 13 bankruptcy allows you to repay your debts in three to five years if there is a steady flow of income. However, by the lapse of five years and you have not cleared your debts, sell your assets to repay the remaining debts.
How Bad Is Filing For Bankruptcy?
A bankruptcy claim dents your creditworthiness in the eyes of financial institutions. They will see you as untrustworthy, and the chances are that they will not credit you. For firms who credit you, chances are the interest rates can be higher and on strict terms.
It is hard to accept that you are in a precarious position financially and cannot pay your debts. But the existence of bankruptcy laws offers reprieve at this time when the debt burden weighs you down.