Bankruptcy – An Effective Solution To Severe Financial Crisis

In order to deal with severe debt crisis, it is essential to choose the right debt solution that can free you from the overwhelming stress and pressure involved in such situations. Though there are various solutions available for people in financial crises, bankruptcy is one of the most significant one that can help individuals and business organizations clear their debt burden and obtain peace of mind.

Personal bankruptcy is an option available to individuals facing outrageous financial difficulties. It is applicable only in case of unsecured debts such as credit cards, unpaid tax, unsecured loans, overdrafts, catalogue bills, etc. It does not however, protect you against debts like student loans, alimony and child support, mortgages, court fines for offenses etc.

There are two types of personal bankruptcy, namely, chapter 7 or straight bankruptcy and chapter 13 or wage earner bankruptcy. The first type is suitable for people having non-exempt assets in their possession that can be seized by the court in order to make debt payments to the creditors. The latter is suitable for individuals having a comfortable income despite the debt crisis they are going through. The court negotiates with the creditors in order to provide the debtors with a decent repayment plan based on their convenience and affordability. Debtors are entitled to make a particular monthly payment to their lenders over a fixed period of time, only after they have covered all their necessary monthly expenses.

There are various ways in which individuals can benefit from personal bankruptcy filing.

It clears all past financial records, thereby providing individuals a fresh start.
Once an individual is declared bankrupt by the court, all their creditors are legally prohibited from making any direct contact with them. Henceforth, the lenders are only allowed to contact the court for any issues. This gives immense relief to the debtors from the constant harassments of the creditors.
Bankruptcy includes an automatic stay that becomes activated the instant an individual files for bankruptcy. This automatic stay is an order from the court that effectively puts a stop to foreclosure, either completely or for a definite period of time.
Filing for bankruptcy does not necessarily mean that individuals would lose control over all their assets. There are allowances in the law that enable them to keep various valuable properties like clothing, furniture, tools, jewelries, insurance, pension funds etc.

However, there are certain impacts this particular debt solution can have on an individual’s life.

In most cases, they might end up losing all their assets.
Once declared bankrupt, a person can no more serve as a company director.
They lose the right to participate in the formation, promotion and management of a limited company unless given permission by the court.
They cannot practice as a lawyer or chartered accountant.
They cannot become a member of the parliament or the local authority.
Following bankruptcy, their credit record may be poorly affected for a long time.
They might sometimes be publicly examined in the court.

Let’s Talk About Bankruptcy And Your Taxes

When it comes to bankruptcy and paying taxes, there are several serious issues that you’ll want to have uppermost in your mind. If you’re filing for bankruptcy, you want to make sure that you’re doing everything humanly possible to save yourself as much trouble, expense, and time as you can.

You should know that any income tax debts may be eligible for a Chapter 7 or Chapter 13 bankruptcy. If you’re willing to file for one of them, there are five ways you can avoid your tax debt. However, keep in mind that in order to get your taxes discharged by filing for bankruptcy, you must meet certain requirements, so make sure you leave no stones unturned before you proceed with the bankruptcy process to eliminate your tax burden.

A Chapter 7 filing will enable you to obtain a complete and total discharged of any and all the debts that are allowable under the law. With Chapter 13 filing, a payment plan must be drawn up so you can pay back at least some of your debts, and the remainder will be discharged. Not all of your tax burden will be discharged if and when you file for bankruptcy. You must meet five requirements in order to get your debt taxes eliminated, and each one is highly essential in achieving your goal. They are:

1. The date the tax return was due had to have been at least 3 years ago.

2. The tax return had to have been filed at least 2 years ago.

3. The tax assessment should be at least 240 days old.

4. The tax return can’t be fraudulent

5. You can’t be found guilty of income tax evasion.

If you’re able to meet each of these stringent requirements, you shouldn’t experience any problems and will most likely get your tax debt discharged. Remember that filing for bankruptcy carries its own consequences — especially on your credit score. But that’s a subject for another article. You shouldn’t file for bankruptcy in an attempt to avoid paying your tax debt, because in the long run, this strategy will cause more harm than good when it comes to the damage it’ll do on your credit report.

File for bankruptcy only as a last resort, after you’ve done a careful examination of every aspect of your situation from top to bottom and from side to side. Only after you’ve done a complete analysis of all the facts in your case, if you still believe you have no other recourse available to you, filing for a Chapter 7 or Chapter 13 bankruptcy may very well be your best chance of rebuilding your life and your future.

Rules Made By Bankruptcy Courts For Effective And Successful Bankruptcy Filing

Financial difficulties can crop up anytime and due to various reasons. Some of the most significant factors contributing to a severe debt crisis include reckless use of credit cards and an irresponsible habit of taking loans over and over again without caring for future consequences. Monetary problems can very well make your life completely unmanageable if not dealt with in an organized and effective manner.

Bankruptcy is one of the various debt solutions that can help people in severe financial crisis overcome their problems conveniently. However, there are various other solutions other than bankruptcy that can also prove to be helpful in managing debt problems. A knowledgeable attorney can help in providing adequate information on all your legal rights and options.

In case bankruptcy turns out to be the most suitable option for you, it is extremely important for you to know the various rules made by the bankruptcy courts to make your petition valid and successful.

For individuals to file for bankruptcy, it is required for them to complete a credit counseling course. It is essential to complete this course under the guidance of a certified credit counselor. During bankruptcy filing, the Bankruptcy Counseling Certificate must be submitted to the court in order for your petition to be accepted by the court.

The court has also made it compulsory to complete a means test to prove that your annual income is low enough to make you eligible for bankruptcy filing. The means test aims at proving that your annual income does not surpass the median income for a family of your size in your state.

To file for personal bankruptcy the court demands some essential documents that can be used as valid records for your current annual income and current personal expenditures. Some of these required documents include an income proof for the last six months prior to the bankruptcy filing, a copy of your paycheck, a pay stub, bank records, rental agreement and any other kind of income proof that had been received by you within a period of six months prior to the bankruptcy filing.

Bankruptcy filing can only help in clearing unsecured debts. It cannot help in dealing with secured debts such as secured loans, court fines for offenses, alimony and child support, student loans, tax debts etc.

Bankruptcy courts do not necessarily seize all your valuable assets. The court has made several provisions in the bankruptcy law that help you in retaining some of your assets like furniture, clothing, jewelry, household items, tools, insurance, pension funds, inexpensive vehicles and in some special cases even your home. The extent of allowance largely varies from state to state and depends on individual situations and requirements.

Some states provide individuals with the choice of federal bankruptcy exemption in the place of state bankruptcy exemption. In order to make the right choice, it is important to evaluate and compare the values of your assets. The only rule however is to stick consistently to one of the options throughout the time.

The court allows you to file for bankruptcy as many times as your financial situation requires. Just because you have filed for it once does not mean that you cannot file for it again in the future.