Declaring bankruptcy is a last resort for individuals or businesses who unable to handle their debts. One of the advantages of declaring bankruptcy is that some debts are discharged (that is, cancelled or terminated). This may help out a person who is in debt and needs some of their debt cancelled. In fact, this is one of the main effects of a Chapter 7 discharge, although not all types of debt can be discharged.
On the other hand, declaring bankruptcy can sometimes result in negative consequences, including long-term damage to a person’s credit score.
Declaring bankruptcy can also change the way that a person’s assets are analyzed in other types of legal proceedings. For instance, bankruptcy can change the outcome of property division in a divorce case, or beneficiary rights in an estate distribution claim.
In order to file bankruptcy, you must file a petition for bankruptcy. After that, you must file a schedule of assets and a statement of financial affairs. The schedule of assets is a list of all the assets you own. The statement of financial affairs should describe what debts you owe and why you are filing for bankruptcy.
The schedule and the statement must be filed within 14 days after you file the petition for bankruptcy. If you fail to file either document in time, the case will be dismissed. Therefore, it is highly recommended that you file the schedule and the statement with the petition for bankruptcy so that you don’t run the risk of having your case dismissed.
After bankruptcy is filed, three things will happen which will set up the rest of the bankruptcy case. First, an automatic stay will be issued. The stay is a court order prohibiting creditors from attempting to collect debt from the debtor on their own. Second, a bankruptcy trustee will be appointed to administer the debtor’s estate. Third, in a Chapter 7 or 13 case, a creditors meeting will be scheduled. The debtor must attend the meeting or risk having the case dismissed.
After the creditor’s meeting, the bankruptcy will proceed according to the type of bankruptcy that was filed or ordered. In a Chapter 7 case, property will be sold while in a Chapter 11 or Chapter 13 case a repayment plan will be negotiated.
You should understand that declaring bankruptcy is not always seen in a negative light. In some cases, declaring bankruptcy can often help the individual or business get a head start on rebuilding their finances. In fact, many individuals have no problem applying for new credit cards after their bankruptcy. For some businesses, declaring bankruptcy may actually serve to help preserve the business name.
When declaring bankruptcy, you should also consider the fact that many other areas of your life may be affected. These can include: tax consequences, estate considerations, employment matters, and family law issues (i.e., spousal support).
Lastly, there are many different types of bankruptcy filings. These can vary depending on whether you’re filing as an individual, business, or other type of legal entity. For instance, businesses tend to file under Chapter 11 or Chapter 13, which allows the company to restructure their financial plans over time. In comparison, individuals usually file under Chapter 7, which often allows for a higher degree of debt discharge.
Bankruptcy laws can often be quite complicated. You may need to hire a qualified bankruptcy lawyer overcome your debts by declaring bankruptcy. Your lawyer can advise you on how to proceed and will provide you with expert representation during the hearings.
Last Modified: 08-12-2014 11:50 AM PDTLaw Library Disclaimer
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