Applying for bankruptcy is considered as a shameful act because the individual becomes a laughing stock amongst those who are near and dear to the family. The family gets a stigma and it would even ruin the name of the family. So people try to postpone the bankruptcy application to the maximum extent possible.

Why people are hesitant?

The reasons are many. Apart from what is stated above, the complicated legal procedure involved in bankruptcy cases is the first thing people fear. The other reason why people are hesitant to file bankruptcy application is the possible harassment by creditors. The creditor may file application for liquidating the personal assets of the debtor. The cost of litigation is one more reason why people hesitate to apply for bankruptcy. These are some of the main reasons why people are reluctant to file an application for bankruptcy.

How justified are these fears?

Of course the process of getting the bankruptcy is somewhat complicated. But there is an attorney who looks after all these procedures and guides the applicant. As a matter of fact, it is the duty of the attorney to take enough care and see that all the legal requirements are complied with.

In so far as harassment by the creditors is concerned, once the application is filed, the creditors will have to approach the court for recovery of the amount due to them. They are not allowed to have any transaction with the applicant. So the applicant is safeguarded by the court.

Cost of litigation:

This is an area which may require careful consideration. Already in the dock with an unbearable burden of loan, the applicant may find it difficult to meet the expenses of litigation. Financial experts say that a bankruptcy application under Chapter 7 would cost around Dollars 250 to 300. On the other hand those filed under Chapter 13 would cost about 175 to 200 dollars. There are also instances of attorneys now and then demanding for some money from the clients. But in the overall analysis, the cost of litigation would be small when compared to the huge debt that is still hanging over the head of the applicant. But if the applicant is able to manage to pay the attorney, then he will be free from burden because the attorney would help to bail him out of the situation.  

Brian Joneta also writes about Bankruptcy and Credit issues including Declaring Personal Bankruptcy and Bankruptcy Automatic Stay

In the recent global recession many banks and renowned companies applied for bankruptcy because it was hard to swallow the continuing loss. The stocks and the real estate nose dived. The gloom in the market reduced the sales and it resulted in huge loss to the business. In such circumstances, there was no other option for these companies but to seek bankruptcy. There are several ways of applying for bankruptcy. The most preferred course of bankruptcy application is to file it under Chapter 11 of the Act.

What is Chapter 11?

In the normal course, after drawing the balance sheet if the liabilities are more than the assets of the company, then the personal assets of the applicant may also be at risk and they may be used to clear the debts. But when application is filed under Chapter 11 by the corporate sector, partnership and the sole proprietorship concerns, the personal assets are spared. This comes as a great relief to the applicant. Further, the company is allowed to continue in business so that it can make one more effort to revive the business and make an action plan to clear the debts. But normally individuals are not allowed to file bankruptcy under Chapter 11.

Exceptions:

Apart from the individuals, large business segments like the insurance companies are not allowed to file bankruptcy under Chapter 11. They have to follow a different procedure as set out in the relevant Act. In such cases, even the federal government would be a party.

Importance of Chapter 11:

Some financial analysts say that Chapter 11 is too liberal and can be misused. The aim of Chapter 11 is to give an opportunity to the business to revamp itself instead of closing down and putting the employees and the share holders in hardship. The government thinks that there is always an opportunity for the business to do well and grow. In some countries the authorities allow the company to change the top management of the company so that the new team could put the business on track. In such cases, care is taken to appoint a team which has the necessary experience and expertise in managing the business. Therefore these eligible sectors always file the bankruptcy application under Chapter 11.

Brian Joneta also writes about Bankruptcy and Credit issues including Declaring Personal Bankruptcy and Cost of Declaring Bankruptcy

Taking loan is a common phenomenon followed from times immemorial. Be it an individual or a business house or a corporate sector, loans are taken, interest is paid and the loans are repaid. But it so happens that for various reasons, the repayments are defaulted. Frequent defaults cause inconvenience to the businessman. Now, the creditors start pressing for immediate repayment of loans. Legal notices are sent; bank representatives make frequent telephone calls or frequent visits. The businessman is under great stress, he is crestfallen. He is in a debt trap and feels that he is in a vicious circle because all his earnings are not enough to update the debts or pay the outstanding interest amount. At the same time his earnings are depleted. The best way to come out of this is to apply for bankruptcy.

Uses of bankruptcy application:

According to the procedure, the application for bankruptcy has to be filed through an attorney. It can be filed online as well. Normally, it takes considerable time to get the final orders on the bankruptcy application. As soon as the application is filed, the creditors would approach the appropriate agency making their claim. So harassment from the creditors is stopped. The appropriate legal forum will scrutinize the application and assess the repayment pattern over a period of time (normally it is ten years) and then decide on the application. Now the businessman is a relieved man because the creditors have stopped approaching him for repayment. Sometimes the jewelry or estates, furnishings in the house, etc. are set off against the loan. Normally, student loans are not waived off and the student is obliged to clear the loan after he secures a job.

What after bankruptcy application is accepted?

Now, the businessman has a clean slate to start with. He is free from the mess and can start his venture afresh. There is complete scope for him to re-establish himself in business. He will be entitled for fresh loans, of course on a limited scale. In short, a person should not feel hesitant to file the bankruptcy application. Instead he should make full use of the bankruptcy settlement and restart the venture.

Brian Joneta also writes about Bankruptcy and Credit issues including Declaring Personal Bankruptcy and Bankruptcy Law

The process of considering the bankruptcy application by the court involves some tedious procedures. For example, application can be made under Chapter 7 or Chapter 13. In some cases, individuals can file application under Chapter 7 also. All these involve thorough law governing the bankruptcy.

Procedure for filing application:

An individual would find it difficult to cope with the legal formalities involved in such cases. On the top of it, in the year 2005 the bankruptcy law has been amended. The revised law has some stringent clauses and procedures which are required to be followed. So, only a person who has knowledge of the law and the legal procedure would be the most appropriate person to take up such cases. Here comes the need for appointing an attorney. There are attorneys who are specialized in bankruptcy law. So it is advisable to hire the services of the ‘Bankruptcy attorney’.

Bankruptcy attorney:

Being specialized in the bankruptcy law, the attorney will be able to guide the client properly. It is a ladder to be climbed step by step. He would ensure that every procedure is properly followed and appropriate documents are furnished so that the applicant is not put to hardship under any circumstances. Of course he would charge consultation or professional charges for the services he has rendered.

Some people feel that the professional charges would further burden them because they are already debt ridden. But this does not seem to be logical thinking because the individual will not be conversant with the law and if he approaches the court directly, he may not get the desired remedy. So it is wise to engage the attorney and his professional charges may not be a burden; considering the relief he gets from the court. Therefore, taking in view the long term benefit the applicant would get, it is always appropriate that the applicant should hire an attorney.

A word of caution!

Before engaging the attorney, discuss the matter thoroughly with the attorney including that of his professional charges and the mode of payment and the payment schedule. Normally the attorney would prefer the applicant to enter into an agreement with him. In such cases, carefully read the terms and conditions before signing the agreement.

Brian Joneta also writes about Bankruptcy and Credit issues including Declaring Personal Bankruptcy and Bankruptcy Lawyer

It is common that individuals consider filing a bankruptcy application a shameful act. They do not realize that getting frequent telephone calls from banks demanding immediate payment on defaulted credit cards or other loans is more shameful and stressful too. The intention of the bankruptcy law is not to squeeze the person of all his assets and bank balance. It is in fact an opportunity given to the debtor to clear all his debt to the best possible extent and start with a clean slate.

How to file a personal bankruptcy application:

Applications have to be filed through an attorney along with the details of the creditors and the details of the assets held, etc. The application is filed under Chapter 7 and Chapter 13 of the Bankruptcy Act.

Chapter 7:

When application is filed under Chapter 7, the applicant has an obligation to liquidate the assets and then hand over the proceeds to the court. The court will appoint a trustee who takes possession of these proceeds. The trustee apportions the proceeds to various creditors in an appropriate manner. As per Chapter 7, some of the assets are exempt from the proceedings both under federal and state law.   

Chapter 13:

The procedure of filing the application is same as in Chapter 7. However under Chapter 13 there is no exemption to assets which come under the purview of Bankruptcy provisions. But the debtor makes a deal with the creditor wherein he would buy some time which is spread over some years during which he would repay the entire debt. Here the settlement would work only if the debtor adheres to the time schedule described in the settlement.

The philosophy of settlement:

The basic foundation on which the settlement is worked depends on the declaration given by the debtor. The debtor has to furnish details of all his assets and liabilities without any cover up or demur. Once the application is taken note of by the court, the parties have to stop transacting amongst themselves. Whatever legal notices issues by the creditor to the debtor or any other correspondence which has taken place amongst them in regard to the loan amount becomes irrelevant. Ultimately what prevails is the settlement declared by the court.

Brian Joneta also writes about Bankruptcy and Credit issues including Declaring Personal Bankruptcy and Bankruptcy Automatic Stay