WHAT IS BANKRUPTCY?
Bankruptcy is an inability
for an individual or organization to pay his or her creditors.
Creditors may file a petition against a debtor in an effort to
recoup a portion of what they are owed. However, it is typically
initiated by the debtor when individuals and/or businesses are
unable repay their debts. During bankruptcy, creditors are not
allowed to forcibly seize assets without approval from the court.
There are two basic types of bankruptcy in the United States
Judicial System, liquidation bankruptcy and rehabilitation
Liquidation Bankruptcy is when a debtor
surrenders his or her assets to a trustee who liquidates the
property and allocates the money to the debtor's creditors. In
return, the debtor relieves some debt. However, the debtor will not
be granted a discharge if he or she is guilty of inappropriate
financial behavior. Liquidation bankruptcy will stay on your credit
history for a minimum of ten years. During this ten year period, one
can be denied credit and other financial perks. In order to qualify
for liquidation, your total family income must be lower than the
median level of your state.
Rehabilitation Bankruptcy is when
a debtor maintains possession of his or her assets, but must
allocate a percentage of his or her future income to repaying
creditors, most likely over a period of three to five years. The
amount of income withheld and the repayment period depend upon a
variety of factors, which includes the debtor's income and expenses
as well as the value of the debtor’s assets.
Most tax debts
Most student loans
support and alimony
Debts you forget to list in your bankruptcy
Debts for personal injury or death caused by driving while
Fines and penalties imposed for breaking the law,
such as traffic tickets and criminal restitution
management is the key to remaining debt free. To ensure your
financial stability, one must avoid frivolous spending, should not
make hasty investments, nor become involved in suspicions business
There are serious long term financial problems that
one can be affected by while in debt. If you find yourself near
bankruptcy, suggest a temporary reduction in your creditor’s
payments in order to improve your financial situation. Secondly,
credit counseling service representatives can help one negotiate
with creditors and help relieve one’s debt.