Know some benefits of bankruptcy
Bankruptcy is a state of a person or a firm unable to pay off
the debts. In legal terms, bankruptcy refers to the settlement
of liabilities of a person/organization, fully or in parts, who
are in a state of not able to meet the incurred financial
obligations. The purpose of such a settlement is to uniformly
distribute the bankrupt's assets equitably among the creditors,
and, to relieve the debtor from further liability (in most
cases). In the US, bankruptcy is governed by a federal law
adopted in 1898 and amended many times, as by the Bankruptcy
Reform Act of 1978 and recently in the spring of 2005.
The two purposes of bankruptcy are
- To give creditors a fair share of the money that one can
afford to pay back. - To give the debtor, a fresh start by
discharging his/her debts.
But bankruptcy, as one expects, has its drawbacks. But there are
some limited advantages as well. Bankruptcy is more broad a term
than finally putting an end to harassing debt collectors and
creditors. Let us see few of the benefits that can be exploited
out of a potential case of bankruptcy.
- First one is linked with the emotional and physical drain
bankruptcy otherwise can cause on the bankrupt person. That is,
there is complete relief from the harassment from creditors once
a person has been declared bankrupt. Creditors' telephone calls,
debt collection and car repossessions ceases and mortgage
foreclosures and other law suits end as soon as one files for
bankruptcy.
- And once a court declares one a bankrupt, a third party takes
reign of the administration and he/she will handle the decision
making and repayment of all the debts. Such a move is actually
freeing the bankrupt person concerned from further stress.
- By a court declaring a person bankrupt, actually it is a
statement to the creditors only to expect less money in the
repayment deal.
- To an extent, that means less loss of money from the
bankrupt's side than what had agreed upon in the individual
voluntary agreement.
- Once discharged, all the overdue are written off. Once reached
such a stage, the creditors cannot chase them.
- Bankruptcy restructures debts so that they are more manageable
over time.
But there are certain debts that are not cleared by bankruptcy.
This includes court fines, HECS debts, child support payments,
debts incurred by fraud, student loans. Even after declaring one
bankrupt, these dues need to be paid back in regular terms.
One can apply for bankruptcy when
1) He/she does not have enough financial backup to live on if
all the monthly repayments that are required to make to the
creditors are made.
2) He/she is on social security or on a low income i.e. less
than $43,000 gross.
3) Does not have assets that could be traded to pay back the
debt.
4) He/she is ready to live with the restriction on access to
credit for 7 years.