Today, we’ve gathered the answers to the common questions people have about bankruptcy.
Find out what bankruptcy is, why people file for bankruptcy and whether bankruptcy will eliminate all debts.
What is bankruptcy?
Bankruptcy is the legal proceeding filed when an individual or a business cannot repay its outstanding debts.
This process allows a debtor freedom from their debts while also giving creditors a chance to get repayment.
If the debtor has assets like real estate investments, the assets will be measured and evaluated to see whether debtors can use them to repay the outstanding debt.
Filing for bankruptcy can be exhausting and stressful, so it’s vital to hire a good bankruptcy lawyer to handle the case.
Why do we file for bankruptcy?
One of the main reasons people file for bankruptcy is to protect their individual or household assets. Loss of income, medical expenses, divorce, dealing with addiction, or being widowed can also force people to file for bankruptcy.
People who incurred losses from lawsuits, failed startups, excessive spending, or contract problems also sometimes file for divorce.
While most bankruptcy filers are individuals, businesses can file for bankruptcy should the need arise. Some companies and individuals even use bankruptcy as a financial planning tool.
You can file for bankruptcy if you have enough money to repay your debt but need to restructure the terms. Doing this will help repay mortgage arrears or taxes in a structured payment plan that won’t be too much of a financial burden.
People also file for bankruptcy if the bank forecloses their homes, repossesses their cars, or evicts them from their homes.
While bankruptcy will help put a stopgap to these situations, it’s not foolproof. Hiring a lawyer to help you explore your options will help significantly.
Does bankruptcy clear all debts?
While most debts can be covered and forgiven when you file for bankruptcy, it does not always cover all debts.
Bankruptcy eliminates credit card debts, medical bills, and payday or personal loans. On the other hand, court-imposed fines, alimony or maintenance payments, and student loans will still exist.
The court may also require you to pay mortgage or vehicle loans.
In the case of debt incurred by misrepresentation or fraud and damages imposed by the Civil Court for criminal acts like intentional bodily harm, sexual assault, or wrongful debt, you will still have to pay them.
More Finance Resources
Bankruptcy is a last resort. It does severe, long-lasting damage to your credit score.
To avoid incurring debt you can’t pay, learn how to manage your money. Hiring an accountant can be a good step in avoiding insurmountable financial ruin by giving you tools to manage your money and assets.
Be sure to invest wisely. You also want to ensure adequate insurance to protect your health and assets. Life insurance, motorcycle insurance, travel insurance, and health insurance are essential insurance products you may want to check out.
If you’re having personal problems, employing a life coach can help you turn your life around.
We hope this article gives you the resources to achieve financial freedom.