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 also possible for a creditor to file a bankruptcy order against a debtor. The debtor has no choice in the matter as proceedings will continue even if the debtor chooses to ignore or dispute the order.
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.
So what are the pros and cons of Bankruptcy?
Not all debt can be removed – alimony payments and taxes are two things that have to be repaid, but under chapter 7 bankruptcy laws an individual will usually come out free of debt, which is why chapter 7 is the most preferred option.
Coming out of chapter 7 has 2 main disadvantages.
Having your goods sold by the court to pay your creditors as far as possible is tough.
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.
All the above relates to chapter 7 bankruptcy laws.
New laws introduced in 2005 make all bankruptcy applicants undergo a financial means test.
In addition, your income is examined and if, over the 6 months prior to filing, your income is more than the median in your state for a family of your size (and you fail the means test), you cannot claim chapter 7 and are pushed into chapter 13.
No personal property is liquidated under chapter 13, but all debt is repaid under a 3-5 year repayment plan.
The main disadvantage of Chapter 13 bankruptcy rules is that the repayment schedule can be pretty harsh. The means test is complex and government has it’s own definitions for “allowable expenses”, “disposable income” etc, which can often serve to make your income appear higher than it is, and making a repayment plan quite difficult.
A chapter 7 bankruptcy stays on one’s credit record for 10 years, chapter 13, 7 years.
For additional free information on how to claim bankruptcy and the various chapters and how they work, go to www.howtoclaimbankruptcy.net Visit the Uber Article Directory to get a totally unique version of this article for reprint.
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