A Look at Various Aspects of Bankruptcy
Wednesday, December 9, 2015, 6:00 AM | Leave Comment
Bankruptcy – all the time you hear this dreaded word; you get shivers down your spine. The faces of your family members occur in front of your eyes, and you earnestly pray to the almighty that he stops you from going bankrupt.
You are not alone. There are million others like you.
For some, it’s even worse; just as all roads lead to Rome, all financial problems lead to the same fear in them; the fear of bankruptcy.
People are so scared of bankruptcy because it seems like the end of the road to them; being bankrupt means being pushed over the edge.
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What is it?
What is bankruptcy? Surprisingly enough, many of us don’t even know that. Yet we fear it because people around us say it’s bad, and the tropes on the television portray a bankrupt man with a crestfallen face as if he’s on the brink of giving up.
In reality, however, bankruptcy is not black and white. There are some grey areas allowing people to take advantage of it.
By definition, bankruptcy is a legal status, which applies to someone, who’s not able to repay his debt.
More often than not, creditors take the borrower to the court for him to be declared bankrupt.
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Advantages of bankruptcy
There are certain advantages of bankruptcy. They include getting rid of tax liabilities, which are older than three years. Bankruptcy is considered a disaster.
Once you declare yourself bankrupt, it becomes easy for you to rebuild your credit.
If you have taken a student loan, and unable to pay that off, declaring yourself bankrupt prevents your lender from taking actions against you.
That’s not all. You may be able to find lenders in the future, who specialize in lending bad risk loans.
Not to forget state exemptions, which allow you holding back your belongings, so you don’t have to lose them for being bankrupt.
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Disadvantages of bankruptcy
Alongside advantages, bankruptcy comes with certain disadvantages.
In fact, the disadvantage side of the weighing scale leans towards the ground.
The very first disadvantage is you’ll lose all the credit cards that you were holding earlier.
That’s because the cards were issued by the bank, and being bankrupt means you don’t have any deposit in the bank.
In case of student loan, even though the lender won’t take any coercive action against you, the debt will retain.
Your credit will fall to pieces, and securing a loan in the future will be nearly impossible.
Bankruptcy makes tax debt non-dischargeable; the debt is not waived, and the borrower doesn’t receive a Form-1099.
On top of everything, getting a mortgage becomes nearly impossible.
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When to file bankruptcy?
There are moments in your life when you become totally directionless. Such a stage precedes filing bankruptcy.
In other words, severe financial or personal distress forces people to file bankruptcy.
Here’s a Forbes article that lists down the top reasons for filing bankruptcy.
Do give it a read to get an idea of why people file bankruptcy.
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How to declare bankruptcy?
You can be declared bankrupt in two ways; one is by the court after it considers the creditor’s plea.
Another one is filing it yourself. Assuming you’d go for the latter, I recommend you to assess your situation before proceeding with bankruptcy filing.
Triple check whether the worth of your asset is less than the total amount of money that you owe the lender.
That’s because you can declare yourself bankrupt only when the asset is less than the debt amount.
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Bankruptcy type
Among the two types of bankruptcy, chapter 7 is dreaded by all borrowers, whereas chapter 13 relieves them.
In case of chapter 7 bankruptcy, your entire asset will be sold off and the money will be handed to the creditors.
It brings you in the street and virtually strips you bare.
Besides, the credit report will bear the bankruptcy record for next ten years.
Chapter 13 bankruptcy leaves the borrower with a choice. The borrower can pay off the debt gradually over a total period of three to five years.
If you have a stable source of income or if you are definite that you’ll make monetary gains within the next five years, go for chapter 13 bankruptcy.
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Bankruptcy fees
Now, we’ve come to the final and perhaps the most important part – how much does a bankruptcy fee cost?
The fee for chapter 7 bankruptcy is $335 and that for chapter 13 bankruptcy is $310.
There are hidden fees associated; if you initially opt for chapter 7 bankruptcy but change your mind later, you’d have to shell out $25 as conversion fee.
You’d have to pay $15-$20 to the trustee when filing for bankruptcy. To obtain credit counselling and to take certain courses, you may have to pay $50-$100.
Attorney fees vary from one state to another.
In major cities, it’s $700-$2100 for chapter 7 and for chapter 13, the fee can be as much as $3000.
Now that you know different aspects of bankruptcy, would you like to file for it? Let us know in the comment section.
What do you think of the article? Have we missed out on something? Do you want to add that? Let us know by leaving a comment.
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Tina Roth is a personal finance writer and educator. In addition to being the editor at her own Finance Blog, she is a contributing writer to many other online finance blogs. When she’s not working on her budget spreadsheet or looking for topics to write about, you can find her playing with her kids or doing her house decoration. To reach her you can visit her Goole Plus profile here.
