Personal Bankruptcies are rare but not unique. Before opting for bankruptcy you should be very clear about its meaning, when to opt for it, the right process for declaring bankruptcy, and what are its implications.
Bankruptcy is not the end of the world (as considered by many) but is a chance to make a new beginning. It is a merciful process by which even a severely indebted person can disentangle himself from all of his obligations. However, before opting for bankruptcy a person should exercise all the options and if there is no other option left then only he should declare the bankruptcy by filling a petition with the help of a qualified bankruptcy attorney with a statement of his assets and liabilities as well as of his creditors.
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Basically, by filling bankruptcy a person lets the court system take over his finances and appoint someone to make an estimate of his debts and explore different ways to repay them. As soon as a person files for bankruptcy and the court approves the petition, all his transactions would get frozen from then on and all his creditors will be notified to not to make any attempts to recover their money from the debtor. After a certain period of time, when the debt has been satisfactorily resolved under the agreement set forth in the bankruptcy proceedings, a discharge is issued releasing the debt and the debtors are duly ordered to stop collection of discharged debts, including legal action and all communications with the debtor. During this period the bankrupt person can avail limited credit only as the legal system and his financial statement will not allow him to enjoy credits beyond a certain limit. Once the total debt amount estimated by the court has been paid, these limits are withdrawn.
In US one can file either Chapter 7 (for irreversible insolvency) or Chapter 13 (for temporary insolvency) bankruptcy. Under Chapter 7, the bankrupt is permitted to retain exempted assets and property. However, the recent tax obligations and the debts to government units are not exempted. Those having steady source of income can only file chapter 13 bankruptcies. Basically, this kind of bankruptcy indicates that the bankrupt is willing to pay his debts within 5 years. Accordingly, his existing assets are not liquidated. Chapter 12 a variation formulated in 1986 is very similar to Chapter 13 bankruptcy. It is applicable to those people who qualify as 'family farmers' (people or families who depend on farming for their livelihood) and has a higher debt ceiling than Chapter 13. The social and corporate stigma attached to filling for insolvency has also been removed by the new amendments in US laws. By making this matter confidential the US government has provided an incentive to the bankrupt party to make another attempt at financial solvency.
While filling for bankruptcy it is essential for anyone to provide full disclosure of his assets and liabilities otherwise the person will be considered as fraud and penalties will be imposed on him. Hence, by being honest one can definitely restructure his finances with the help of bankruptcy.
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