Bankruptcy - When There is No Other Option

By: Skye Liversea

Individual Bankruptcy

The purpose of a chapter 7 is to allow a person to obtain a fresh start, free from creditors and free from the pressures of overwhelming debt. Under chapter 7, a trustee takes possession of all non-exempt property and assets, converts them to cash and distributes the funds to creditors. After filing for relief under chapter 7, an individual debtor may receive a discharge. A business that files a chapter 7 bankruptcy will not receive a discharge. If you receive a discharge under a chapter 7, you may not receive another discharge under this type of bankruptcy for the next 6 years.

By all means, prevent eviction and foreclosure in relation to a home loan, or repossession of a car or other property so you can catch up on missed payments. This is a procedure which many people fail to implement. Bankruptcy should never be the first step taken when you get into financial trouble. You should exhaust all other avenues first. It may often be possible to defer payments on your mortgage or car or other loans, for a short period. You may even need to take a decision to give the car or other moveable property back, or sell it and purchase a much less expensive version. Many times, you will need to give serious consideration to choosing between continuing to make payments or giving the property back. Bankruptcy does not eliminate a lease, mortgage or car loan and let you keep the property at the same time. You will lose the property anyway. So do the sensible thing, and try to reorganize your debts while you still have the option to do that. Once bankruptcy proceedings commence, the wheels will be in motion, and there will be little, if anything, you can do to attempt to retain any non-exempt property you own.

Some tips to consider when thinking about filing for bankruptcy - do not file for bankruptcy when you are owed a substantial tax return from the IRS or the State. Similarly, do not file when someone owes you any substantial amount of money. Any property that you sold or gave away during the previous two years can be reversed in a bankruptcy. Finally, do not pay friends/relatives significant amounts of money within a year after filing bankruptcy, assuming that your financial circumstances change during that year. The trustee in bankruptcy can recover those monies.

There are no "debtor's prisons" in the United States, as there have been in the past in other jurisdictions. You generally cannot go to jail for failing to pay your debts. However, defrauding your creditors can certainly result in a criminal prosecution. Giving your bank a fraudulent loan application, for example, or hiding assets from your creditors can certainly be crimes punishable with jail sentences. Naturally, filing false information or testifying falsely in a bankruptcy proceeding is bankruptcy fraud, which is a federal crime.

You may be surprised to learn that many large companies and famous people have filed bankruptcy, including Texaco, Macy's, T.W.A, Penn Central, Jerry Lewis, Mickey Rooney, Tammy Wynette, and former Treasury Secretary John Connelly. Bankruptcy is a procedure of last resort. It is certainly not a desirable course to take, and will affect your credit rating for years to come. Unless there is absolutely no other option available, bankruptcy should be avoided. It is quite simply not the "right" thing to do to take steps to avoid paying what you owe. Your declaring bankruptcy will result in your creditors not receiving the money that you have contracted to pay them. They will be out of pocket, and this in turn affects all consumers. But that said, sometimes there simply is no other option. At least the stigma of bankruptcy is not nearly so great as it was in years gone by. Indeed, bankruptcies are becoming more and more common.

The American Bankruptcy Institute stated that during 2003, consumer bankruptcies were filed at a rate of 185 per hour. This is about double the number that filed a decade ago in 1993. One out of every 73 households filed for bankruptcy in the year 2003. These are astonishing statistics. And the trend continues. During the 12 months ending June 30, 2004, a record 1.63 million bankruptcies were filed.The first week of October 2005 showed over 100,000 filings, up from approximately 68,000 the week prior. This was the fourth straight record week when more than 3 times the normal number of bankruptcies were filed. More Americans filed for bankruptcy last year in the United States than in the entire decade of the 1960s.

What is the outcome of a bankruptcy from the bankrupt's point of view? It is an elimination of the legal duty to pay most or all of your debts. Bankruptcy is effectively a "discharge" of debts. Bankruptcy is designed to give you a fresh financial start.

Business Bankruptcy Plans - Part 1 of this Article