Critical Facts You Must Note Before Filing for Bankruptcy

For a lot of people, the thought of bankruptcy alone is scary and have the tendency to lead to depression. When an individual or business entity gets to the point of considering filing bankruptcy, there are several major fears they encounter. And this is because people usually do not consider bankruptcy information early enough.

What does it mean to go Bankrupt?

As much as there is available bankruptcy information out there, it usually takes reality to make a lot of people seek knowledge on it. The implications however could be grave when it finally sets in. But let’s explore the concept first.

Bankruptcy is a process under the Federal law that allows both individuals and business entities declare insolvency or express the inability to pay up its financial responsibility anymore. When a person or business claims thus, they then apply to the courts seeking to clean out their debt profile. However, the onus lies on the applicant to prove to the court why they qualify for bankruptcy. It is only after that the law can protect and implement the liquidation and repayment of assets.

Fundamental discoveries on those who declare bankruptcy the most

There is so much bankruptcy information in the public sphere that could guide those seeking information. Research into available official data shows that between 1980 and 2005, there was a steady increase in applications for bankruptcy in the US alone.

More households are going bankrupt

Particularly alarming was the fact that in 2005 more than half the number of families in the US filed for bankruptcy. The situation as of 2016 seems far better with a 60% drop in bankruptcy cases from 2005. Though, 2016 is the only year since 2005 where there was a less than 10% drop in bankruptcy application by 5.9%.

Consumers vs. businesses going bankrupt

Bankruptcy information available data indicates that more individuals are going bankrupt than businesses. While in 1980, 13% of companies filed for bankruptcy, the figure reduced to 3% in 2016. Meaning more consumers are filing for bankruptcy than businesses. While companies are becoming more profitable, consumers are going broke.

Age factor in bankruptcy

Available data indicate that there are more senior citizens than younger ones filing for bankruptcy. Exactly ten years ago, 2007, not up to 2% of those below 25 filed for bankruptcy. Senior citizens aged 55 and over accounted for over 50% of those filing for bankruptcy.

Marital Status and Bankruptcy

More married persons are filing for bankruptcy than single. About 64% of filers are married, 15%, divorced, 3%, widows, and 17% are single in 2016 reports.

Education

Findings show that students in colleges and high school account for a huge percentage of filers for bankruptcy.

Income levels

Lower income earners are known to file more for bankruptcy.

Medical conditions

Those with medical issues especially not covered by insurance tend to make the list of those filing for bankruptcy more also.

The Types of Bankruptcy

There are two types of bankruptcy, liquidation and re-organisation. Liquidation means the individual or organisation’s properties could be sold to pay back debts. Re-organisation means, while the person or enterprise keep their assets, they would have to abide by certain requirements and plans that allow them to clean out their debts over time.

Laws on Bankruptcy and how it affects applicants

It is pertinent to get enough bankruptcy information before you commence any action.

Chapters 7

Chapter 7 proceedings pertain more to liquidations. Applicant’s properties could be sold to offset debt, and all process lasts between three to six months. In the case of Chapter 7 bankruptcy, the claimant must prove that income levels are too low to cater for expenses. As part of the benefits, unsecured loans and credit card debt can be forgiven but alimony payments, child support and taxes are not included. Your furniture, car and clothing are usually safe from being sold off to pay debts.

For secured debts (debts acquired using a property as collateral to obtain a loan) the property could be transferred to those owed while the applicant makes payments.

Chapter 13

Chapter 13 is more of re-organisation proceedings, applicable to businesses and individuals. It means applicants could keep their assets intact and work out a repayment plan over a period of years. It is for individuals, with a very reliable source of income.

The applicant gets a three to five year period to pay back, depending on their income and how much they owe. To qualify would also depend on whether their debt meets the specified limits for filing bankruptcy for both secured and unsecured loans.

Chapter 11

If not qualified for 13 individuals and businesses can file for Chapter 11. Though more expensive, proceedings under 11 are used mainly for struggling businesses on a recovery plan to pay off debts.

Chapter 12

The only difference between Chapters 12 and 13 is in the fact that 12 it concerns those whose loans are 80% gotten from family farms.