Bankruptcy is an inability for an individual or organization to pay his or her creditors. Creditors may file a petition against a debtor in an effort to recoup a portion of what they are owed. However, it is typically initiated by the debtor when individuals and/or businesses are unable repay their debts. During bankruptcy, creditors are not allowed to forcibly seize assets without approval from the court. There are two basic types of bankruptcy in the United States Judicial System, liquidation bankruptcy and rehabilitation bankruptcy.
Liquidation Bankruptcy is when a debtor surrenders his or her assets to a trustee who liquidates the property and allocates the money to the debtor's creditors. In return, the debtor relieves some debt. However, the debtor will not be granted a discharge if he or she is guilty of inappropriate financial behavior. Liquidation bankruptcy will stay on your credit history for a minimum of ten years. During this ten year period, one can be denied credit and other financial perks. In order to qualify for liquidation, your total family income must be lower than the median level of your state.
Rehabilitation Bankruptcy is when a debtor maintains possession of his or her assets, but must allocate a percentage of his or her future income to repaying creditors, most likely over a period of three to five years. The amount of income withheld and the repayment period depend upon a variety of factors, which includes the debtor's income and expenses as well as the value of the debtor’s assets.
Unforgivable Debt includes:
Most tax debts
Most student loans
Child support and alimony
Debts you forget to list in your bankruptcy papers
Debts for personal injury or death caused by driving while intoxicated
Fines and penalties imposed for breaking the law, such as traffic tickets and criminal restitution
Proper money management is the key to remaining debt free. To ensure your financial stability, one must avoid frivolous spending, should not make hasty investments, nor become involved in suspicions business ventures.
There are serious long term financial problems that one can be affected by while in debt. If you find yourself near bankruptcy, suggest a temporary reduction in your creditor’s payments in order to improve your financial situation. Secondly, credit counseling service representatives can help one negotiate with creditors and help relieve one’s debt.
