Declaring bankruptcy
Bankruptcy refers to the legal declaration done by an individual or company of being unable to pay their creditors. Bankruptcy can be declared by individual, company or creditor. Mainly it is initiated by individual or company.
Declaring Bankruptcy is initiated when the business fails to meet its debt obligations. Organization or individual files a petition in federal court to either reorganize its debts or liquidate its assets. The legal process insures equality among the creditors of a corporation declared to be insolvent. Bankruptcy can be spiritual, intellectual or moral.
Petition to initiate bankruptcy can be filed by:
* A Director
* A creditor
* The director of public prosecution
* The Debtor
* A person affected by a voluntary arrangement set up by the debtor
The proceedings of bankruptcy are prescribed by the National Bankruptcy Act. It can be voluntary or involuntary. If the debtor himself files the petition for declaring bankruptcy it is called voluntary bankruptcy otherwise involuntary.
Reasons of Bankruptcy:
* Large hospital & medical bill
* Debts after divorce
* Large amount of debt of credit card
* Even to buy time
. In U.S cases of declaring bankruptcy are handled by federal court. Bankruptcy cases cannot be filed in state court. All the 94 federal judicial districts take care of bankruptcy matters. During bankruptcy US Federal Court may legally release a person from repaying debts. According to U.S state constitution bankruptcy is a privilege. It adjusts between debtors and creditors. Many debts are forgiven. Most of the property is sold to repay creditors, debtors are allowed to keep some property known as exempt item. Creditors can receive nothing or entirely.
Bankruptcy stays on your credit report for 10 years . It may make difficult or very expensive to get credit in the future. You cannot file bankruptcy, more than once in 6 years. Few people consider bankruptcy as stigma as they can be considered as runaway from debts.
Declaring bankruptcy:
Firstly assess your situation and decide if bankruptcy is the best solution or not. Try to negotiate the debt as bankruptcy can pose threat to your current assets, future assets, future credits, reputation employment, family and business. If nothing works and you have to initiate bankruptcy then remember following points:
* Bankruptcy is not free. You will have to pay court costs and administrative fees, trustee fees, and probably will want to pay a lawyer. In most cases, you must pay these fees when you file.
* Always contact a lawyer who is experienced in bankruptcy cases. As lawyer can make or destroy your case. Find a lawyer who can help you choose to your best advantage.
* Plan and structure the case as exemption planning will help you decide what to include in your state exemptions.
* Try to convert nonexempt assets into exempt assets before filing.
* The tax consequences depend on the way the bankruptcy is structured.
* To understand the tax consequences meet with a tax attorney or an accountant.
System of filling petition in Federal court:
* Meet & decide the case with lawyer.
* Meet tax attorney or accountant.
* File the petition with clerk in federal court.
* Pay the fees.
* Clerk will send the file to United state Trustee.
* United state Trustee will review petition.
* It will also review repayment plan.
* Court approval on repayment plan.
* Sell nonexempt property to pay debts & complete the repayment plan within 5 years.
* Debtor can be forgiven of dues if bankruptcy occurred because of personal injury, incurred through fraud etc.
* End of the court.
Different provisions of bankruptcy laws:
* Chapter 7
* Chapter 13
* Chapter 11
* Chapter 12
Chapter 7:
It is mainly used by people who are unemployed or deeply in debt. Court supervises the petition and United state trustee sell all the assets and distributes the cash to creditors leaving exempt property. These cases are also called as no-assets cases as there is usually little or no nonexempt property. The total fee in this case is $209, $155 as filing fee, $39 as administration fee, and a $15 as trustee fee. This is also called as straight bankruptcy. After bankruptcy you will not longer owe money to credit card, hose rent, unsecured loan, unpaid bills, retail charge cards & utility bills.
Chapter 13:
It is also called as debtor rehabilitation chapter. It is preferred in case debtor has some property which cannot be completely exempted and he/she still wants to keep it. In this condition debtor proposes a plan to repay within 3- 5 years. The court checks and confirms the plan, it also helps to determine if your take-home pay, along with other income sources, and living expenses will allow you to repay debts within 3-5years. It is only for those debtors who have regular incomes. The repayment plan needs to be filed in good faith and spouse without regular income can file it with the spouse having regular income. The total fees in this case is $194, $155as filing fee and as $39 administration fee.
Chapter 11:
It is for the business Declaring Bankruptcy. It is mainly used by those businesses who want to reorganize business and repay debts. It gives financial reorganization to business. The filing fee is very high. It is $ 839. Filling under chapter 11 in not only expensive but also complex. It was designed by congress for large corporates but now can be used for proprietor ship firm and partnership firm. It is also done under the supervision of federal court.
Chapter 12:
It was established for farmers but is no longer active. It was expired on January 1, 2004.
Thus bankruptcy reduces the stress on debtors and loan repayment is done by trustee. But in the process debtor looses it property and reputation. Bankruptcy helps the debtor to go for a fresh start in life.
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