The truth about Bankruptcy

Bankruptcy is an option that often has to be considered when an individual cannot pay their debts as they fall due. Bankruptcy is one way of dealing with debts you cannot pay. Although bankruptcy has a bad stigma, and you should think twice before have chosen bankruptcy to deal your debt insolvency case.

Bankruptcy law provides for the development of a plan that allows a debtor, who is unable to pay his creditors, to resolve his debts through the division of his assets among his creditors. This supervised division also allows the interests of all creditors to be treated with some measure of equality. Certain bankruptcy proceedings allow a debtor to stay in business and use revenue generated to resolve his or her debts. An additional purpose of bankruptcy law is to allow certain debtors to free themselves (to be discharged) of the financial obligations they have accumulated, after their assets are distributed, even if their debts have not been paid in full.

There are six types of bankruptcy under the Bankruptcy Code, located at Title 11 of the United States Code:

• Chapter 7: basic liquidation for individuals and businesses; also known as straight bankruptcy; it is the simplest and quickest form of bankruptcy available
  
• Chapter 9: municipal bankruptcy; a federal mechanism for the resolution of municipal debts
  
• Chapter 11: rehabilitation or reorganization, used primarily by business debtors, but sometimes by individuals with substantial debts and assets; known as corporate bankruptcy, it is a form of corporate financial reorganization which typically allows companies to continue to function while they follow debt repayment plans
  
• Chapter 12: rehabilitation for family farmers and fishermen;
  
• Chapter 13: rehabilitation with a payment plan for individuals with a regular source of income; enables individuals with regular income to develop a plan to repay all or part of their debts; also known as Wage Earner Bankruptcy
  
• Chapter 15: ancillary and other international cases; provides a mechanism for dealing with bankruptcy debtors and helps foreign debtors to clear debts.
  
  The most common types of personal bankruptcy for individuals are Chapter 7 and Chapter 13. As much as 65% of all U.S. consumer bankruptcy filings are Chapter 7 cases. Corporations and other business forms file under Chapters 7 or 11.

What are the implications of bankruptcy?

• You lose control of your assets.
  
• You cannot obtain credit for over $250 without the permission from the lender.
  
• You cannot act as a company director.
  
• You cannot take any part in the promotion, formation or management of a limited company (LTD) without the permission of the court.
  
• You cannot trade in any business under any other name unless you inform all persons concerned of the bankruptcy.
  
• You may not practice as a Charted Accountant / Lawyer.
  
• You may not act as a Justice of the peace (JP).
  
• You may not become an member of parliament.
  
• You may not become a member of the local authority.
  
• Your credit is affected for many years after the annulment.
  
• You may be publicly examined in court.
  
  
  
  

What are the advantages of bankruptcy?

• For the person involved, bankruptcy provides relative peace of mind and possible automatic discharge after one year (or less in some cases).
  
• For the creditors, bankruptcy allows a full investigation of the debtor's affairs to be carried out.
  
  Please note that if you are ever faced with the prospect of bankruptcy you should look at alternatives such as the debt consolidation or debt settlement. Most bankruptcy cases can be avoided with proper help.