Bankruptcy is a legal status that results in an individual or organisation that cannot repay debts either paying debt off or reducing it.
What does it mean to file for bankruptcy?
It enables entities to have a clean slate, but equally important is keeping in mind that there are effects to be dealt with. Not everyone qualifies and its vital to know what it takes before even attempting.
It may involve paying debts off with the assets owned. A trustee is placed in charge for the duration.
Understanding the various types of bankruptcy:
Chapter 7 involves the sale of assets but won’t wipe all debts out. Typically used by individuals, it offers a viable solution within six months.
Chapter 11 is mainly used by organisations. Debt is reorganised and it can keep running throughout the process. Recovery form this filing may be quite challenging but it can be done.
Chapter 12 is available to farm organisations. This enables them to keep their land. It typically takes five years to complete.
Chapter 13 usually involves a three to five year plan. It is designed for individuals who have some form of disposable income, which can cover repayments of debts.
Chapter 9 is a bankruptcy option for cities and towns and enables debt reorganisation.
When should one file?
- When creditors are calling non-stop and you can’t make payments. If you see absolutely no way out it may be ideal.
- It may be ideal when finances are overwhelming and you have exhausted all alternatives.
- Keep in mind that the process of filing is not fast and you need to be ready for the entire process. Not everyone qualifies and you need to pass a means test and also undergo a form of credit counselling prior.
Once discharged, its vital to take the necessary steps to find the best ways to recover. Changing financial behaviour is essential.