Understanding Bankruptcy Law: What You Need to Know Before Filing

Admitting for bankruptcy is a complicated process still knowing the basics about bankruptcy laws can help simplify it considerably. For anyone who is an individual buried under a mountain of bills, or a business entity trying to keep track of its finances and acquire a new organization plan filing is very important to understand one’s rights and the consequences that a filing invokes. This article carries general information on the great area of bankruptcy law and what you ought to think before going for this huge move.

Types of Bankruptcy

In the United States the main form of bankruptcy is extensive and it is subdivided into different types depending on the circumstances of the applicant and the type of business he or she operates. The most common types include:

• Chapter 7: Commonly known as the liquidation bankruptcy, Chapter seven enables anyone to write off nearly all the unsecured debts. A trustee is put in place to dispose non exempt assets in order to settle the creditors. Some property is allowed to be retained and this depends on the state.
• Chapter 13: This type is created to allow people with a constant income who want to discharge their amount slowly, to do so. For debtors, it enables them develop a repayment schedule for a period of three to five years after which any of the unsecured debts may be discharged.
• Chapter 11: Basically filed by companies, Chapter 11 allows a business to reorganize it and continue operations. Debtors offer a suggestion as to how they are to pay their creditors in installments while still owning their properties.

The first thing you need to know is which type of bankruptcy you are dealing with.

The Bankruptcy Process

Filing for bankruptcy involves several critical steps:

1. Credit Counseling: The law in the United States requires that before filing, the individuals must get credit counseling from an agency approved within six months before filing the case. This step assist to determine the financial standing and also evaluate options toward bankruptcy.
2. Filing the Petition: The next procedure involves the filing of the petition to the bankruptcy court, this petitions involve schedules and statements of assets, liabilities, income and expense . Documentation is crucial as any error makes it hard or the case can be dismissed or complicated.
3. Automatic Stay: The moment a petition is filed, the court automatically imposes an automatic stay to put a stop to any collection proceedings against the debtor. This gives the debtor a breathing space in as much as the creditors are concerned while the issue of debtor’s bankruptcy is being sorted out.
4. Meeting of Creditors: A meeting of creditors abbreviated as 341 meeting will be set for the creditors to make queries on the debtor’s financial affairs and the plan of paying back creditors.
5. Discharge of Debts: Where all necessities are fulfilled and no dissensions are made, a discharge of qualified debts will be recognized in the jurisdiction where the bankruptcy petition was filed and the debtor will be relieved with a financial breakthrough.

Consequences of Filing

Although the legal system may offer the emotionally needed protection from burdensome debt, it doesn’t come without its penalties. A bankruptcy stays on your credit file for up to ten years and will impact your credit standing every time you apply for credit. Moreover, there are some obligations, for example, student loans and child support, that are considered nondischargeable.

Alternatives to Bankruptcy

One should consider settling for any other form of relief such as debt adjustment or debt reformation before filing for a bankruptcy. These might be useful in controlling debts some of which might not be as disastrous as that of the bankruptcy. Your financial advisor or credit counselor can offer better advice on the available choices for you.

Conclusion

It is advisable for anybody who considers the option of applying for bankruptcy resolution to avail himself of detailed knowledge of the law governing bankruptcies. After learning about all types of bankruptcy, how to file it, the implications of the process and other available options, the individual makes informed decisions regarding bankruptcy. Though it may help, including reopening a business via bankruptcy, individuals should be careful and think several times before opting for it. Eventually, it is possible to consult with legal and financial consultants to help embrace this complicated process and come out of it as a victor.