The average person’s experience with bankruptcy is losing a four-hour game of Monopoly. For those in severe financial crisis; however, filing for bankruptcy is no game, but rather an unfortunate necessity required to salvage their remaining assets. But what does it actually mean to declare bankruptcy?
As frightening as bankruptcy may seem, having a solid understanding of it can remove some of that fear and help those in financial peril know what to do to avoid it. Here is a breakdown of the bankruptcy process and how declaring bankruptcy can affect your financial future.
What is Bankruptcy?
Declaring bankruptcy is a legal procedure that prevents citizens who’ve suffered from bad investments like payday loans or careless spending from becoming homeless and penniless by providing them an opportunity to rebuild and catch up on missed payments. Filing for bankruptcy can help reorganize and eliminate personal and business debt liability while also preventing banks and collection agencies from hounding you.
The Automatic Stay
Harassment from collection agencies can be devastating when struggling with mounting debt. Fortunately, creditors are prohibited from contacting you as soon as you petition for bankruptcy. Courtesy of an injunction known as the automatic stay, creditors cannot send collection letters or call to collect their debts, foreclose on or repossess property, or file a lawsuit to claim your wages. The automatic stay may take off some of the heat from creditors, but if you can’t settle your defaulted debts during this period of bankruptcy petition, then you must file for a chapter of bankruptcy.
Bankruptcy Chapters
There are different types of bankruptcies, which are usually referred to by their chapter in the U.S. Bankruptcy Code. Each of these bankruptcy chapters apply to either individuals or corporations and are further divided into two categories: liquidations and reorganizations. For instance, businesses may file under Chapter 7 to liquidate or Chapter 11 to reorganize their assets, while a farmer may qualify for Chapter 12 to relieve their debt. Cities and school districts can reorganize under Chapter 9 bankruptcy, whereas Chapter 15 applies to parties from different countries. Depending on their financial situation, most individuals file for Chapter 7 (consumer) bankruptcy or Chapter 13 (“wage-earner”) bankruptcy.
Get Protection Before Bankruptcy
While bankruptcy is designed to protect individuals from financial ruin, it is not a bailout, and there are consequences to declaring bankruptcy that will severely impact your credit score and ability to qualify for future loans.
If you are drowning in debt, defaulting on loans, and facing creditors threatening foreclosure, filing for bankruptcy is not your only option. Progressive Debt Relief can help you recover from financial misfortune by negotiating and settling your unsecured loan debt, including payday loan debt. Contact us today 877.590.1847 to find out more about our services or to schedule a complimentary consultation .
