Filing for bankruptcy is a major step. Some argue that it should be your final resort, perhaps not your first choice, but it ought to be something you learn about early on. Bankruptcy can differ so greatly from scenario to scenario that you should know if it is a viable choice for you before making any major decisions.
What Is Bankruptcy?
When a person or corporation is unable to discharge existing debts or obligations, a judicial action called bankruptcy is begun.
The bankruptcy procedure begins with a petition filed either by the debtor, which is the most frequent, or by creditors, which is less usual. All of the debtor’s assets are measured and analyzed, and some of the assets may be utilized to repay some of the remaining debt.
Bankruptcy is a court procedure in which a judge and a court trustee review the assets and obligations of individuals, partnerships, and corporations whose debts have become so large that they no longer think they can pay them.
Who considers Filing for Bankruptcy as an option?
Most people and organizations filing for bankruptcy have considerably more obligations than money to cover them, and this is unlikely to change very soon.
Bankruptcy, on the other hand, is frequently used as a financial planning tool when you have enough money to repay debts but need to alter the conditions. This is common when consumers need to settle mortgage arrears or taxes under a structured payback plan.
What is shocking is that individuals, not corporations, are the ones who go for filing for bankruptcy the most frequently. They owe money on a mortgage, credit card debt, vehicle loan, school loan, or small Business Loans— maybe all! – and do not have the income to pay it.
When Should I File for Bankruptcy?
If you’re wondering, “Should I file for bankruptcy?” Consider carefully if you could pay off your loans in fewer than five years. If the answer is no, it’s time to file for bankruptcy.
The reasoning is that the bankruptcy legislation was designed to offer people a second opportunity, not to penalize them indefinitely. If a mix of poor luck and bad decisions has ruined your financial situation and you don’t anticipate it improving in the next five years, bankruptcy may be your best option.
Even if you do not meet the criteria for bankruptcy, there is always hope for debt relief. A debt management program, a debt consolidation loan, or debt settlement are all options. Get online legal advice for deciding the best possible way for you.
What Are the Most Common Reasons for Filing for Bankruptcy?
Medical expenditures, student loan debt, job loss, and divorce are all key reasons individuals file for bankruptcy, according to statistics. Often, two or three of these factors may come together and put a fire under your financial goals.
Many people feel that people who declare bankruptcy are simply living above their means, but the main causes of bankruptcy are frequently more complicated – student debts required for an education, a catastrophic illness – and the person is left unable to pay their payments.
People in this scenario frequently contemplate declaring bankruptcy when:
- Creditors are suing for payment of debts.
- Their house is on the verge of foreclosure.
- Their sole method of payment is by credit card.
Considerations Before Filing for Bankruptcy
There are debt relief options that you should investigate before filing for bankruptcy. There are also certain things to avoid. If you are having financial difficulties, you may have enough resources to right the ship without even realizing it.
If you intend to file for bankruptcy on your own, you should counsel with a business lawyer. To assist in paying down debt, you can consider taking up a second job or selling some assets.
Also, examine your debt carefully. Is it possible to negotiate a lower interest rate or reduced fees? Is this a one-time occurrence or a long-term issue?
The flipside of filing for Bankruptcy
On the other hand, there is a significant mental and emotional lift when all of your debts are discharged, and you are granted a fresh start.
Sometimes, delaying filing for bankruptcy can (help) a person or business manage their cash flow in the near term, giving them the breathing room to live in the medium or long term without declaring bankruptcy.
A person or corporation should investigate alternatives to bankruptcy, such as looking for short-term financing, because declaring bankruptcy has substantial and long-ranging implications. It might often be advantageous to wait until there are no other options before declaring bankruptcy.
Why File for Bankruptcy?
If you’re filing for bankruptcy, you’ve undoubtedly explored every other option to avoid it, putting in a lot of work to get out of what seems like a financial quagmire. You’re probably as fatigued as your previous endeavors and now see bankruptcy as a final choice.
Don’t lose heart. You’re not by yourself. Bankruptcy can occur as a result of unavoidable events or actions over which one has no complete control.
Millions of individuals who lost their jobs or enterprises as a result of the coronavirus now have some hope thanks to bankruptcy. They still had debts to pay and, in many cases, no way to do so. That’s what bankruptcy was supposed to solve. This is not a bailout. It was designed to help people get back on their feet financially and regain their peace of mind.
If your debts have accumulated to levels that your income cannot support, filing for bankruptcy is a safe, legal, and practical option.
Pros and Cons of filing for Bankruptcy
- Allows debtors to get out of default
- Certain unsecured debts are cleaned up.
- Avoids legal action
- It has a negative impact on one’s credit score.
- The collateral for secured debts will be taken.
- Certain debts, such as child support, are not dischargeable.
Simple Procedure for Filing for Bankruptcy Petition in India
- Gather your financial records.
- Consult with a legal advisor.
- Seek financial protection separately or jointly.
- File an appeal under the Provincial Insolvency Act with the assistance of your legal expert.
- Obtain court administration.