How Bankruptcy Works
Bankruptcy... a frightening word with serious connotations. In
recent years governments have been cracking down, making
penalties for bankruptcy more severe in an attempt to make them
more difficult to attain so that only those in serious need can
apply for them.
Despite the negative image that is associated with bankruptcy
and the various problems that come along with declaring a
bankruptcy, it doesn't have to be frightening; after all,
bankruptcy was designed as a way for those individuals and
businesses who find that their finances are out of control to
get the help that they need to organize their finances and pay
off their debts.
Once you take the time to understand what bankruptcy is and how
it works, you won't find it as scary as you did at first.
Defining Bankruptcy
Bankruptcy is a legal term, meaning that an individual cannot
within reason pay off their various debts and have allowed the
court system to take over their finances for this purpose.
When filing for bankruptcy, the court will appoint someone to
work out the payments to your creditors and to determine how
much of your income must go to repay these debts. The court will
either allow you to make payments, or more likely will deduct a
portion of your paycheck toward this goal.
During this time, your credit will be limited... both by legal
action and by the reluctance of creditors to issue credit lines
to individuals who have declared bankruptcy.
Once the total amount set by the court has been repaid, the
bankruptcy will be discharged and you will be able to start
rebuilding your credit from the ground up.
Different Types of Bankruptcy
Several different types of bankruptcy exist, defined by legal
codes for certain purposes. The exact types of bankruptcy
available differ from one country to the next... in the United
Kingdom bankruptcy can only legally be applied to individuals
and partnerships, whereas in other countries such as the United
States or Canada they can be applied to businesses as well.
Regardless of the limitations or allowances set by the
government on who is allowed to declare bankruptcy, the general
purpose of bankruptcy remains the same.
Lasting Effects of Bankruptcy
While you are working towards discharging a bankruptcy, your
options for credit will be exceedingly limited. Even after
you've had your bankruptcy filing discharged, though, you'll
still find that you won't have many options for a while... many
creditors will still be hesitant to work with you from between
six months to two years depending upon the creditor and the
service that you're applying for.
You should also take care with any offers that you do receive,
because they will likely come with high interest rates and
additional fees attached.
Life After Bankruptcy
Bankruptcy isn't the end of the world... it's actually a chance
for a new beginning. As time goes by, the bankruptcy on your
credit report will begin to matter less and less as you
eventually start to establish new positive credit lines and
build up your credit again.
Just like negative reports, your bankruptcy will eventually
expire from your credit history; the process may take up to
seven years, and until it expires there will still be those who
are hesitant to deal with you.
Once it expires, however, the negative reports that preceded it
will also be long gone... and you'll find that your newer
reports are all that remain.
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