What Is Bankruptcy?

Bankruptcy is the legal process of paying the assets of debtors who are in debt, distributing the earnings to creditors, and relieving the debtor of any further liability. Bankruptcy is designed to give the debtor afresh start from old debts, as well as to fairly settle creditor claims through an equitable distribution to them of the debtor's remaining assets.

Important Aspects To Know About Bankruptcy

While bankruptcy may be the only way out for some people, it also has serious consequences that are worth considering before you make any decisions. For example, bankruptcy will remain on your credit report for either seven or 10 years, depending on the type of bankruptcy. That can make it difficult to obtain a credit card, car loan, or mortgage in the future. It could also mean higher insurance rates and even affect your ability to get a job or rent an apartment.

What to Do Before Filing for Bankruptcy

Bankruptcy is generally considered a last resort for people who are deep in debt and see no way to pay their bills. Before filing for bankruptcy, find out if your creditors are willing to negotiate. Rather than wait for a bankruptcy settlement—and risk getting nothing at all—some creditors will agree to accept reduced payments over a longer period.

Types Of Bankruptcies

Even though the general goal of bankruptcy is to clear debt, not all bankruptcies are created equal. There are six different types of bankruptcies:

Chapter 7: Liquidation

Chapter 13: Repayment Plan

Chapter 11: Large Reorganization

Chapter 12: Family Farmers

Chapter 15: Used in Foreign Cases

Chapter 9: Municipalities

How to File for Bankruptcy

If you've decided to file for bankruptcy, your first step should usually be to consult an attorney. Before you file, you'll be required to attend a counseling session with a credit counseling organization approved by the Department of Justice’s U.S. Trustee Program. The counselor should evaluate your financial situation, describe the alternatives to bankruptcy, and help you devise a budget plan. Counseling is free if you can't afford to pay; otherwise, it should cost about $50, according to the Federal Trade Commission.

HTH & Accounting Associates help organizations and business owners with accounting and/or financial consulting services.  

For Help with accounting cycle or Bookkeeping contact us at accounting@thaddeus.org or call us at 909-599-2111

Resources:

https://www.accountingtools.com/articles/2017/5/10/bankruptcy

https://www.investopedia.com/articles/pf/07/bankruptcy.asp

https://www.ramseysolutions.com/debt/types-of-bankruptcies

https://boylancode.com/bankruptcy-missteps-misconceptions/

Thank you for reading, 

The writer of this blog is, Jory Mirtil. He works at Thaddeus as an Accounting Intern. He chose Thaddeus because of the work environment and the mission it stands for. He is someone who aspires to be an Accountant one day. His career path journey will involve a ton of work experience and education in accounting in order to reach his dream to become a CPA.