When Can Bankruptcy Be The Right Decision For Me?

Wednesday, April 2, 2014, 1:00 AM | Leave Comment

Bankruptcy is a drastic step with long-term consequences. It is not appropriate for casual debtors or irresponsible spenders who will jump right back into debt.

Anyone considering this step should take time to investigate the various options and see whether or not filing for bankruptcy is right for them.

Petition to File for Bankruptcy 2

To get started: There are two main types of bankruptcy used by consumers, Chapter 7 and Chapter 13.

  • Chapter 7 – Liquidation

    Debtors are allowed to keep a limited amount of personal assets and enough money for ordinary living expenses. Everything else they own is sold. The proceeds are turned over to their creditors, who accept this partial payment as final and walk away.

    Some specific details may vary by state. For example, an automobile may be kept up to a certain value, with anything above that amount turned over to the creditors.

    A home used as a principal residence may be protected. Retirement accounts are protected but not other types of investments.

    This option works best for those with reduced income, no reasonable hope of repaying their debts and willingness to start over.

  • Chapter 13 – Repayment

    A court-appointed trustee consolidates all debts into a repayment plan spread out over time, typically 3-5 years.

    Collection activity is stopped. The debtors’ personal finances are monitored to avoid creating more debt.

    This option works best for those with more assets, including long-term investments, and who have sufficient income to maintain a repayment plan.

  • Limitations

    Some debts cannot be erased in bankruptcy. These include student loans, back taxes and other government debts such as business loans.

    Taxpayers with these types of debt should create a plan to repay them even if their bankruptcy is approved.

    With the help of a bankruptcy professional, like those at Harris & Partners Inc., you can be sure to come up with a feasible plan for managing your debt after bankruptcy.

    Having a trustee in bankruptcy from Toronto can a great resource for someone looking down this debt control road.

  • When Does Bankruptcy Make Sense? Some Examples

    • Homeowners who are under water while losing their jobs. This double blow results in the inability to pay an oversized debt on a money-losing property.

    • Numerous credit cards combined with a tough economy cause many consumers to push their cards to the limit. Interest and fees cause the debt to spiral out of control.

    • Health emergencies not covered by insurance are the single most common cause of bankruptcy. These range from accidents to nursing home costs, especially devastating for older people who are otherwise financially secure.

    • Bad investment deals or failure of an unincorporated business.

Bankruptcy laws were created to give good people a chance to recover from financial hardship and make a fresh start. When used properly, the process allows people a fair chance to rebuild their lives.

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