Bankruptcy is a legal process that allows individuals and companies the opportunity to eliminate accumulated debts. This process also helps to stop creditor harassment.
Causes of Bankruptcy
Bankruptcy can occur for a variety of reasons. Here are the top reasons for filing bankruptcy according to those statistics:
- Salary reduction
- Medical bills
- Student loan debt
- Job loss
- Utility bills
- Credit card and personal loan debt
- Expenses for unexpected emergencies
- Overspending/poor budgeting
Types of Bankruptcy
Both individuals and businesses may file for bankruptcy, and there are different types of bankruptcy to be used depending upon your situation, and the type of business (Sole Proprietorship, Limited Liability Corporation (LLC), S-Corp or Corporation. Most types of bankruptcies fall under the following 3 categories:
Chapter 7 Bankruptcy. Gives individuals or sole proprietors the ability to cancel most or even all of their debt and/or sell possessions to pay off amounts owed.
Chapter 11 Bankruptcy. Gives debtors, usually businesses, an opportunity to reorganize their debt under a plan approved by a court that enables them to continue running their business.
Chapter 13 Bankruptcy. Does not cancel your debt but allows you to keep your property by instead reorganizing debt to be paid over a set period of time.
Pros and Cons
- Gives you a chance and time to recover.
- Reduces harassment from creditors.
- It can help you keep some of your assets, including your home.
- It may keep your business afloat and give it a chance to pay off debts.
- It is an ongoing process including specific rules and conduct that must be followed.
- Failure to pay amounts agreed to can cause severe problems.
- It will likely require commitment to lifestyle changes.
- Long term credit ramifications.
If you are being foreclosed on, for your home or place of business, bankruptcy can be a stopgap to slow down a foreclosure process and allow you time to get back on track with your payments to keep your property.
When Do You Need An Attorney?
The decision to declare bankruptcy should never be taken lightly, although this may be the only option for many people struggling with their finances. Seeking the help of a qualified bankruptcy attorney can help you understand the best options for your specific case. Declaring bankruptcy could potentially save you and your family from losing your house, your family car, and other important assets. You should be able to find a qualified bankruptcy attorney in most areas of the country, and you are likely best to find one in your local area.