The Skinny on Declaring Bankruptcy

So you owe a lot of people a lot of money, and you fear being sued by all of them at the same time, and you don’t have money to pay the lawyer, because the recession took it all. So what do you do? Think bankruptcy protection.

You are not alone. The US economy has been going through its most difficult phase after the credit crisis hit in the summer of 2007. This has been the worst phase since the Great Depression of 1929. There have been job cuts. Consumer spending, which was the backbone of the US GDP growth, has been lower, and there have been bankruptcy filings from individuals as well as large companies.

Before the credit crisis, the US economy saw a period of tremendous growth in credit. This allowed people to spend beyond their means. They thought that they could always finance the old debt with a new one. As the credit crisis struck and banks froze lending, individuals and businesses were left in the lurch; they could not service their debts; they couldn’t get a loan to pay another loan. So people filed for bankruptcy.

Bankruptcy is a situation in which a debtor is not in a position to service his or her debts. It is the federal court procedure that is specially made to help businesses and individuals eliminate all debt or repay it under the safeguard of bankruptcy courts. This brief Bankruptcy law guide should give you an insight into bankruptcy laws in the US and their advantages and disadvantages.

Bankruptcy laws Explained

In the US Federal Code, under the Chapter 7 titled “Bankruptcy”, all the non exempt property of a debtor is eventually sold and the proceeds distributed to creditors. Under Chapter 13 Bankruptcy, one does not need to hand over the property but one must use the income for paying some of what one owes to the creditors from 3 to 5 years, according to the size of income and debts.

Personal Bankruptcy law

Personal Bankruptcy is a process that allows people to declare astute of bankruptcy. Individuals can file bankruptcy under both chapters 7 and 13.

Business Bankruptcy law

Business bankruptcy is a situation where a business has more liabilities in comparison to its assets and is not capable enough to meet the financial obligations on time. Any kind of business may file for bankruptcy. Businesses can file bankruptcy under both chapter 7 and chapter 13. A Chapter 13 bankruptcy has more benefits than chapter 7 as it is a Federal bankruptcy and the bankruptcy law does not need liquidation of the business.

Advantages and Disadvantages Of Bankruptcy law

The advantage of declaring a bankruptcy is that it allows individuals and businesses to have a fresh start. Chapter 13 is especially useful as it does not require any kind of liquidation of assets. The main disadvantage of filing for bankruptcy is hiring of attorneys to file for bankruptcy. The attorney fees as well as litigation expenses can be financially damaging and time consuming. Even if you file for a business bankruptcy, you would be required to pay higher rates on future mortgages.

Filing for bankruptcy is a serious decision. Although it has its share of disadvantages, it allows individuals and businesses to start afresh. It’s a way of telling “them” you can’t take it anymore, and they will let you go. Though the bankruptcy law can protect you when your financial misfortunes keep adding up and there’s no way out, living within your means can avoid financial misfortune. When you can prevent the disease itself, why to go looking for the medicine?

This is a guest post from Stephen P. Klien. Here’s what he says about himself:

I have made many strides to overcome financial distresses in my life and taking control of my finances during the recession just made me take on another battle. I have made many choices in my life and made friends with many experts in the industry to allow me to learn what I know now. Being a 2 year alumnus during the recession has been extremely difficult for me.

Here’s my story: I solicited donations for the university from alumni while I was getting my bachelor’s in Gerontology. As soon as I graduated, the market crashed. People were losing their jobs, their houses and even their families. Others were going back to school to get a higher education and even more loans. I wanted to test the waters a bit and really found nothing in my field.

So I took the skills that I learned from calling strangers and applied it to get a sales job at a large financial corporation. Through this job, I learned about secured and unsecured lines of credit. Customers were coming into my office to apply for loans that used their homes and cars as collateral. I also had to sell them credit cards at ridiculous rates! But some of them had nowhere else to turn, and they needed me to consolidate all of their debt. Thus, my job in finance continues. It’s been a ride.

Tags: bankruptcy, bankruptcy laws, bankruptcy laws explained, financial law, personal bankruptcy