The word bankrupt no longer carries the stigma that it once did. The reality of the modern world is that financial crises happen, and on occasion, even financially experienced businesses and individuals find themselves overwhelmed by debt. When that happens, bankruptcy does not mean financial ruin, but it does have ramifications and is not a decision to be entered into without careful consideration.
What is Bankruptcy?
When personal or business debt becomes unmanageable, federal law provides the option to file a bankruptcy petition with the United States Courts. In 2017, 790,830 debtors sought relief through bankruptcy. What many do not understand is bankruptcy also protects the interests of creditors. There are two common types of bankruptcy filings:
- Chapter 7 bankruptcy – Debt is eliminated, but a court-appointed trustee will look for property owned by the debtor that can be sold to pay off creditors. Generally, personal property like homes, cars and private possessions are considered exempt from being sold and remain the property of the debtor.
- Chapter 13 bankruptcy – Does not eliminate debt but reorganizes it and requires a repayment plan to creditors. The debtor may keep their property, but courts will order them to pay the value of items that are not exempt as part of the repayment plan.
Effects of Bankruptcy
The first and most positive effect of filing for bankruptcy is that creditors can no longer call, threaten or use other methods to collect the debt. Debt repayment is part of the bankruptcy settlement. This is why many feel that they are starting over with a clean slate.
There are some other consequences of filing for bankruptcy. A bankruptcy remains on credit reports for up to 10 years depending on the type of filing. It may be difficult to obtain new lines of credit and may be a cause for a prospective employer not to hire.
Also, there are a few types of debt that bankruptcy will not resolve or eliminate, including:
- Taxes due
- Fraudulent loans received by the debtor
- Personal injury debt due to negligence or drug and alcohol use
- Student Loans
- Child Support
Filing for Bankruptcy
A bankruptcy filing Portland ME should only be made after careful consideration. When debtors decide to pursue bankruptcy, they may file a petition with the U.S. Courts as an individual or through an attorney. The courts recommend that individuals consult with a bankruptcy attorney.
The primary reason is that the judges and employees of the court are prohibited from offering legal advice. If there is something the petitioner does not understand about the process, they must find the answers for themselves. A bankruptcy attorney eliminates this concern and will provide all legal advice required.
The decision to file for bankruptcy should be made thoughtfully. Sound legal advice along with an understanding of the process and consequences are essential. When it is the appropriate alternative for debt resolution, it can relieve the stress of living under overwhelming debt and provide a new financial beginning.