Bankruptcy is a legal process that allows individuals or businesses to have their debts forgiven or restructured. For many, it is the only option to free themselves of financial burden.
While bankruptcy can provide much-needed relief for those struggling with debt, it can also have significant consequences that you should consider carefully before making a decision.
Why People Go Bankrupt
There are several reasons that individuals or businesses may seek bankruptcy protection. Some of these reasons are more common than one might think.
Loss of Income Or Unexpected Expenses
If an individual experiences a sudden loss of income, such as job loss or medical bills, they may struggle to pay their debts on time.
A business that experiences unexpected expenses, like damage to its property or a lawsuit, may need more financial resources to pay its debts. In these cases, bankruptcy can provide relief by allowing the individual or business to restructure their debts or be forgiven entirely.
Poor Financial Management
Another reason for bankruptcy is overspending or mismanagement of funds. If an individual or business consistently spends more money than they earn, it may eventually fall into a financial crisis.
This can be especially true if they have high levels of credit card debt or other unsecured debt, as these debts typically have high-interest rates that can quickly add up. In these cases, bankruptcy can provide a way to get out of debt and start fresh with a more manageable financial situation.
Failure To Keep Up With Loan Payments
If an individual or business cannot make the required monthly payments on a loan, they may eventually default on the loan.
This can lead to the repossession or foreclosure of assets, such as a home or car, or legal action from the creditor. In these cases, bankruptcy can provide a way to reorganize the loan or have it forgiven entirely.
Types Of Bankruptcy To File For
There are several types of bankruptcy available to individuals and businesses, each with its requirements and consequences. For individuals, the most common types of bankruptcy are Chapter 7 and Chapter 13.
Chapter 7 bankruptcy involves the liquidation of assets to pay off debts. It is reserved for those who have limited payment options or cannot pay.
Chapter 13 bankruptcy involves the restructuring of debts and the creation of a repayment plan. It is typically suitable for those with a steady income but who cannot fully pay their debts. The court imposes a repayment scheme for these individuals, who will carry out their obligations to pay according to schedule.
Is Filing For Bankruptcy Without Consequence?
While bankruptcy can provide relief for those struggling with debt, it is not without consequences. Filing for bankruptcy will have a significant impact on an individual’s or business’s credit score, which can make it a challenge to obtain loans or credit in the future.
Additionally, bankruptcy may require the liquidation of assets to pay off debts. Carefully consider the potential consequences of bankruptcy before deciding to file. You can avoid losing important properties with the right strategy and the help of a skilled bankruptcy attorney.
Consider Legal Help For Bankruptcy Proceedings
In conclusion, bankruptcy is a legal process that allows individuals or businesses to have their debts forgiven or restructured. It is often sought as a last resort for those struggling with debt and with no other options for financial relief.
While bankruptcy can provide much-needed relief, it is essential to consider the potential consequences carefully. If you need help assessing your options for bankruptcy, contact Lincoln-Goldfinch Law for an evaluation.
Loss of income, unexpected expenses, poor financial management, and falling behind on loans are some reasons that people go bankrupt. They may need to sell off assets with Chapter 7 bankruptcy. They may also opt for Chapter 13 bankruptcy by following a payment plan. Let a bankruptcy attorney help you determine what type of bankruptcy is suitable for your situation and how you can avoid losing important assets.