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.