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Understanding Bankruptcy

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Author: Barnam Julls

Bankruptcy is the legal means of wiping out debt. It may seem like a simple solution when you get in over your head in debt. Bankruptcy is a way of dealing with overwhelming debts which you cannot pay. You will have to give up all your possessions of value and your interest in your home. Bankruptcy is a very serious affair, requiring lawyers, courts and more than a little amount of money.

Bankruptcy is not a choice to be made lightly. Failing to pay your debts not only hurts you, it hurts everyone. Bankruptcy is simply not an option for both practical and political reasons. We can advocate privatization, more efficiency and transparency, reform of the CIB and even using corporate and individual sponsorships to underwrite costs are all viable solutions. Bankruptcy is just, if resolved through a fair and speedy judicial process. A bankruptcy proceeding acknowledges the actual state of affairs that exists, that the bankrupt entity cannot repay its debts.

Bankruptcy is a legal process intended to help individuals and companies who are unable to meet their debt obligations. Bankruptcy can help you get control of your financial situation and help you maintain possession of property to which creditors might have a legal claim. Bankruptcy is the single worst thing you can do to your credit scores, the three-digit numbers lenders use to gauge your creditworthiness. That means, for a time at least, it will be more difficult and expensive for you to get credit. Bankruptcy is public record and will be reflected on your credit report but not permanently.

Debts that arose after the bankruptcy filing do not fall under the automatic stay. Importantly, as the automatic stay goes into effect immediately upon filing, there is still an obligation to comply with the stay even if a debt collector did not receive notice of the bankruptcy or automatic stay. Debt consolidation, also called debt counseling or credit counseling, sounds good. In theory, the consolidator negotiates lower interest rates and wraps all of your debts into one neat package.

Bankruptcies are a net positive for the economy because more productive competitors are rewarded by opportunities to buy up remaining assets at bargain prices to strengthen their operations. In an economy that allows this kind of growth and change, any jobs lost by bankruptcy are soon replaced by new ones as the most efficiently managed businesses gain access to more assets and expand. Bankruptcy starts when someone in debt (a debtor) is declared bankrupt by the sheriff or the Accountant in Bankruptcy. If a debtor is declared bankrupt, it means that they have to hand over their estate including their home, to their trustee. Bankruptcy won't relieve you of your obligation to pay your mortgage, but it might make your mortgage easier to pay by getting rid of other debts. If you have substantial equity in your home, you might lose it if you file for Chapter 7, depending on how generous the exemptions laws are that are available to you.

Bankruptcy may needlessly put many more jobs at risk at the very time we need Americans working. Bankruptcy will always be the rope for people too deep in the quicksand, but it's best to learn to read the warning signs and stay away entirely.

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