No Cost Financial Legal AidNo one wants to declare bankruptcy, but if you have no other option here is everything you’ll need to know. Why would someone want to file for bankruptcy? You might want to file bankruptcy to dispose of major debts that they owe. This can help a person or business owner get back on their feet. Once a person can no longer pay the long or short term contracts such as their mortgage, car lease, taxes, or a large loan (excluding government student loans), they are termed insolvent.
Bankruptcy is the legal process that takes place when either a person or any other entity, including limited liability corporations, can no longer afford to pay back one or more debts that are due to a creditor. Most of the time bankruptcy occurs after a court order that is initiated by the debtor.
What is Chapter 7 Bankruptcy Process?Chapter 7, also known as “Straight Bankruptcy”, exists when an individual goes to court and declares that they can no longer pay their debts. After the filing has been completed, all assets that the debtor owns are collected, sold, and split up to pay back the creditors. After all the assets of worth and aren’t necessary for living (basic cookware or a suit to help you find a job) are liquidated, you will be debt free. However, the downside is that Chapter 7 Bankruptcy will stay on your credit report for 10 years. This can make it difficult to find a job, rent a place to live, or get any loans. Also, in this scenario, not all loans will be paid off. For example, any student loans that are not forgiven after declaring bankruptcy will remain on your credit report and will need to be paid back.
What is Chapter 11 Bankruptcy Process?
Chapter 11 Bankruptcy, otherwise known as Reorganization bankruptcy. This is ideal for individuals who have a salary position or another form of regular income, but are drowning in debt with no feasible way of paying it off. This can happen for many reasons such as a medical emergency and a credit card was used to pay for the bill, an unexpected lawsuit loss, a car accident not covered by insurance, or any other unknown expense. With Chapter 11 Bankruptcy, the debtor speaks with the creditors to discuss the predicament they are experiencing, informing that there is no possible way to pay the creditor the amount required at this current moment in time. If the individual is required to pay the amount now, they would likely end up having to file for Chapter 7 Bankruptcy.
Instead, the debtor will negotiate a means of paying that debt back over a period of time. In this situation, there is a possibility of salvaging a relationship and all the debtors assets remain intact. The terms for this negotiation is usually based on a 3-5 year contract and there will be some fluctuation in the amounts owed usually with the intention of helping the debtor pay back the required amounts. So what’s the downside to this form of Bankruptcy? Similarly to Straight Bankruptcy, it will remain on the debtor’s credit report for 7 years after the 3-5 year negotiated term and contract are completed resulting in a total of 10-12 years of tarnished credit.
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