We all take loans to fulfill our needs and desires in life. These loans are given by banks and financial institutions with the promise that you will repay them fully in the form of equated monthly installments. However, due to poor financial planning, many people end up accumulating large debts which they find difficult to repay later. Bankruptcy is believed to be a means of getting rid of huge debts. However, understanding how bankruptcy works is essential for all of us.
The Concept of Bankruptcy
Bankruptcy is to be filed by cash strapped individuals in the state or federal court. This actually means that the individual has no money in cash or even assets to clear off the debts which he has taken from his creditors. After you file for bankruptcy, a well drafted repayment plan would be given to you. Since you are finding it difficult to repay the entire amount, your dues would be reduced to make repayment possible. Because of these provisions, the banks lending you money have a chance of getting back at least some of their money from you.
Understanding how does chapter 7 bankruptcy work is quite simple. If the debt ridden person chooses to file bankruptcy as per the chapter 7 form, then he will have to surrender all the properties he has to his creditors. After this is done, the bankruptcy court will cancel all his pending debts. Many people wonder how does chapter 13 bankruptcy work to reduce debts. Under chapter 13 bankruptcy, the court will allow the person to keep his properties with himself with a condition that he deposits a fixed sum of money with the court as a way of clearing debts. The benefits of bankruptcy are that your debts get taken care of and you are not left with any kind of legal obligation when it comes to the people who gave you credit. If your creditor has taken away your home or car to recover the money, then he will be ordered to return your assets if you have filed for chapter 13 bankruptcy. Banks are also instructed to stop the procedure of foreclosure of loan and provide you with some more time to clear your dues in the case of a home loan. Once your petition for bankruptcy is accepted by the court, then you will not receive any calls or intimation from your creditors for the payment of their dues. This can certainly be a big relief considering the tension and emotional stress a person has to go through during this process. So, having a detailed knowledge of the pros and cons of bankruptcy is absolutely essential before you choose to file it. Chapter 11 bankruptcy means that you wish to file for a business bankruptcy.
If we speak about the cons of bankruptcy, then the major one is that it remains in your credit report for around seven to ten years depending on the type of bankruptcy you have filed. A bankruptcy record can create problems in your future financial management as you can be refused loans or insurance coverage in the years to come. It can also be called one of the biggest negative events in the life of an individual.
By now, you must have known how bankruptcy works. Though bankruptcy filings can help you get rid of debts, you should try to avoid such situations by taking debts of those amounts which you are confident of repaying. Having financial discipline always pays in a big way in the long run. So, hoping that you will take this advice seriously, I would like to sign off here wishing you all the best for your future!
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