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When Declaring Bankruptcy Makes And Doesn’t Make Sense

23 October 2018 No Comment

When you hear stories about people going bankrupt in the news, a lot of time there’s the instant connotation of failure, and that bankruptcy is something that happens to people versus a measured move. While yes, many people who declare bankruptcy wish that they were able to do something else, this is an important procedure that helps many people with financial hardship get out of difficult scenarios, even if there comes a price with it. So, in reality, there are situations where declaring bankruptcy is actually the ideal choice to make.

Let’s quickly go over the three most common forms of bankruptcy that you are likely to encounter.

Chapter 7: The vast majority of businesses that enter bankruptcy are going to file for Chapter 7, which is designated for people who don’t have a lot of property or assets. Here, a trustee is appointed by the course to take possession of a business that files for it and distributes said assets to the different credit. After this is taken care of, the business is released from their debts, generally with a massive credit hit

Chapter 11: This is really only applicable for larger corporations, and generally involves creditors voting on a plan of reorganization to pay its credits.

Chapter 13: Many individuals who file bankruptcy go this route have to file for chapter 13, who provide a repayment plan to show how they will repay their debts.

For any of these three options, bankruptcy makes the most sense for people who are already deep in the debt hole. For example, if you have so few assets left that you need to use credit for basic essentials, then you probably will want to at least give bankruptcy some added thought. The same applies if you find yourself having to pay for one credit card with another. Things like these do nothing to support your financial situation, and will only make things worse. While the issues with bankruptcy are clear, at least it will put a final end to your ongoing struggle with your debt.

Another thing to keep an eye out is if your debt is causing potential problems for money you have yet to make or use. For example, lenders do have the opportunity to garnish your wages in extreme cases in order to pay your debts. In some cases, this is just a temporary hardship that people can weather. However, if your situation has you in debt with multiple lenders at once, than this can pose a serious issue. Here, you get into deeper debt with one lender because another one is garnishing your wages. The same also applies if you find yourself having to take money out of retirement accounts to pay debt. If that money has been accruing interest, this is money that you will never get back. Better to file bankruptcy now than potentially go into retirement with nothing saved.

In general, the type of people who should avoid bankruptcy are the type of people who may have found themselves in debt trouble, but also have means to potentially get out of it down the line. For example, a little bit of credit card debt is nothing to go to bankruptcy court over. This is unsecured debt, which means your lender can’t demand collateral in turn for things not being paid. This means the fears most people have about debt shouldn’t materialize. As a result, it’s better to buckle down and work out a payment plan rather than running for bankruptcy right away as a result, it’s better to buckle down and work out a payment plan rather than running for bankruptcy right away. In the same vein, don’t let debt collectors spook you into bankruptcy either, even if they are persistent.

So, with this in mind, despite a lot of the lingering ideas people have about bankruptcy, there are plenty of viable situations where it will work in your favor. However, once you’ve established that this is the case, it’s key to make sure you work through the process as effectively as possible. This is where a bankruptcy lawyer comes in.

According to Gagnon, Peacock &Vereeke, a firm of Dallas personal bankruptcy lawyers, “Regardless of which type of bankruptcy you are filing for, an attorney is necessary to ensure that every requirement is successfully fulfilled and you achieve the outcome you are seeking. An attorney will be able to evaluate your financial situation to determine which kind of bankruptcy is right for you.” They add that lawyers are an essential part of guiding you through the process, both adhering to requirements as well as avoiding any major mistakes. They will also work to protect your important assets during the process.

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