Although there are a lot of people under the impression that declaring personal bankruptcy is a sure shot way of clearing all the debt but in reality all debts do not get cleared by claiming bankruptcy. Payment related to child support, alimony, any taxes that you bear, personal injury debts, education loans funded by government and any housing fee has to be paid even if you declare yourself bankrupt.

By declaring personal bankruptcy you are also liable to pay a fee that is associated with bankruptcy. These include fees that you have to pay in the court and also the fee that you require to pay to the lawyer. A bankruptcy attorney may cost you several thousand dollars.

When declaring bankruptcy please make sure that that you are taking the right decision. Take note of debts that will not get covered, even if you are declared bankrupt. Declaring bankruptcy comes with a number of costs. It is always better to plan alternatives like negotiating with creditors, building a repayment plan, making a budget etc. Even if you have two file personal bankruptcies, you can do that under Chapter 13 so that your liquid assets such as bonds, shares and property do not get confiscated.

Declaring personal bankruptcy has a lot of negative consequences. You will not be able to apply for loan or credit anywhere again. It gets difficult to get a job and you cannot even apply for a home loan. It is difficult to get out of the credit report for 10 years which can limit your credit amount serially.

In case you do not find any other alternative than declaring bankruptcy then it is always recommended that you hire a good bankruptcy lawyer and research as much as information you can before taking your decision. Ask your lawyer to charge you a reasonable amount and ask him if you can pay him in parts. You must only higher that lawyer who will pay personal attention on your case. Bankruptcy lawyer’s fee is something that you cannot escape if you are going to declare bankruptcy. Paying a nominal fee can be both in your and the lawyer's interest.

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Declaring personal bankruptcy is a very sensitive issue. In fact, it is one decision that is going to decide your future. Sometimes life under heavy debt may feel like a failure. Fortunately, bankruptcy laws have been designed to provide respite to debtors and allow them to start afresh in their life. They are both positive and negative effects of declaring personal bankruptcy. The decision whether you should file Personal Bankruptcy or not should be made only after going through both pros and cons of the matter.

Types

Bankruptcy is generally filed under Chapter 7 and Chapter 13. Though Chapter 7 can discharge a considerable amount of debt but in most cases it will force a liquidation of the entire assets of individuals declaring the bankruptcy. If the declaration is filed under Chapter 13, the debtor is given some time and a considerable portion of the debt is lowered making it easy for him/her to get rid of his debts.

Benefits

Once the declaration has been accepted by the court, and automatic stays implies which is the first benefit of declaring personal bankruptcy. In any case, creditors cannot make any annoying calls on visit you personally to cause trouble. In case of Chapter 13, terms of loans and other mortgages can be modified and interest rates can also be lowered. Most of the time, a person who has filed personal bankruptcy under Chapter 13 is entitled to get big exemptions.

Effects

It is an undeniable fact that bankruptcy also has a lot of negative effects. Firing bankruptcy under Chapter 7 mainly destroy an individual’s credit that he has accumulated in several years. It is difficult for the one who has declared bankruptcy to get any future loans and credits. Home mortgage also becomes difficult for future. A bankruptcy cannot discharge priority debt like alimony, taxes, student loans and child support.

It is possible for secured creditors to repossess any property or political security that you have. It is recommended that you before you file bankruptcy; you can attempt to negotiate with creditors. Anyhow if things are not working out, declaring personal bankruptcy can be considered.

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Choosing to declare bankruptcy is entirely a personal decision and it may induce different consequences on your professional and financial life. People who are under great burden of debt generally have two choices when filing bankruptcy. They can declare Bankruptcy either under Chapter 7 or Chapter 13. Declaration of bankruptcy under Chapter 7 allows you to seek forgiveness of most debts, file the same declaration under Chapter 13 will lower the debt amount and each structure them into a repayment plan which will be court-supervised. It is important that you have the knowledge of right regulations to successfully declare bankruptcy.

You can prepare yourself a bit before declaring bankruptcy. It is a good idea to make a list of your debts, child support, pending student loans, daycare costs, alimony and utility bills. There is a required set amount of information that you will need to declare while filing bankruptcy whether you do it own or you hire an attorney.

You must also prepare a list of assets that also includes interests from any property or your house. You will also have to include savings account, stocks, any expensive jewelry or any other personal property. You also have to report your retirement account but anyhow you are not going to loose it. Never ever try to hide anything as this is a serious crime. You must adhere to truth when you're declaring bankruptcy otherwise you may even have to face a federal imprisonment.

Take out any bank statements, paycheck stubs and tax return papers that you have and take out a copy of it. If you do not possess any financial documents; you can ask your employer to provide you with Internal Revenue Service.

An important step is deciding whether you wish to declare bankruptcy under Chapter 7 or under Chapter 13. The Chapter 7 may allow complete forgiveness of your debt with exceptions, in case of criminal fines, student loans and child support. Declaring bankruptcy under Chapter 13 will cause the debt to be reduced but you will require paying according to a repayment plan after a small interval of time. It is always a good idea to consult a bankruptcy lawyer before declaring bankruptcy. He will guide you with the right procedure and also recommend you under which Chapter you must file bankruptcy.

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Too much debt can bring a devastating result in a company's or an individual's life. Providentially, bankruptcy laws exist to bring respite to the person who is overburdened with debt. There are different chapters of bankruptcy laws for different circumstances. The laws also keep changing and if you are planning to seek bankruptcy then you must have knowledge about all that is required. Alternatively, you can hire an experienced and smart attorney who can deal with your case of bankruptcy without any problems. But the question is how you would know that which bankruptcy attorney would be right for you.

You must first look forward to get a recommended bankruptcy lawyer. You may ask a friend or acquaintance to refer one to you. If you do not get it by referral, try Yellow Pages where you'll find lawyers that are grouped according to specialty. You can also go for debt relief agency. You may first call the bankruptcy lawyer and talk to him about the problem. A lot of bankruptcy lawyers offer free initial consultation. After speaking with two or three bankruptcy lawyers, fix a meeting with one with whom you identify your self. Think about how much experience the lawyer has and whether he specializes in bankruptcy laws or not. Also ask him whether he will be handling the case himself or will hand it over to a paralegal or associate. You can also ask the lawyer if you could play him in installments.

After choosing a suitable lawyer, fix an appointment and meet him and discuss your case in detail. Make sure that you do not hide anything from the lawyer. Ask them to pay individual attention to your matter. Ask about how much fees he/she would be charging along with all the paperwork. If you think that the bankruptcy lawyer is asking for a very low fee, and then please think about your choice again as he/she may not be aware of all the laws.

Bankruptcy should be a matter of very high importance and serious consideration for you. Even though a lawyer is not important for filing bankruptcy petition but the kind of paperwork involved can be complex. So it is recommended that do not try it yourself. After all, bankruptcy may have far-reaching ramifications. A bankruptcy attorney is inevitable to get you through it.

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Automatic stay is a potent consumer device that offers protection while consumers are seeking bankruptcy. A bankruptcy automatic stay by definition is a temporary evaluation that gets placed automatically once an individual or company files bankruptcy petition.

As listed in the US bankruptcy code section 362, the automatic stay will provide security to those seeking bankruptcy from almost all creditors. Creditors are also barred from taking any action against the individual seeking bankruptcy from the moment the bankruptcy case is filed. The automatic stay feature applies on every bankruptcy case and it provides unique benefit to the filers.

Limitations of the Automatic Stay

Automatic stays obviously have some boundaries. Certain legal actions like criminal cases, tax audits and family court proceedings do not accommodate under purview of the stay.

Who Can Lift the Automatic Stay?

The main aim behind the bankruptcy code is providing security to creditors who have various interests in income and property of the debtor. This does not mean that just anyone who has some property interest in the debtor's estate can claim relief from automatic stay. The relief can only be sought by secured creditors, those who have tort claims or those who are actually the co-owners of the estate.

Procedure for Lifting the Stay

Once the automatic stay has been imposed, it can be modified or lifted only by the court. Creditors can make this possible by filing a motion. If there are a number of creditors, even a single creditor can wish to seek relief. Relief can also be of several forms including modification, termination and conditioning. In the case of termination, the stay gets eliminated. Modification of stay allows creditors to go ahead with certain actions that have been forbidden from the stay. Conditioning allows some requirements that the trustee or editor must satisfy in order to continue with stay.

Significance

This procedure that facilitates relief from automatic stay is in favor of creditors and it un-does the unjustified claims from the debtor. The laws are meant to do justice to both the debit and creditors. For correct procedure, it is important that one should consult a good bankruptcy attorney.

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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.  

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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.

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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.

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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.

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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.

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