With today’s economic crisis, there is without a doubt several individuals who are trying to live from pay check to pay check. Meaning, their income is not enough to sustain their daily lives that once they receive their salary, it is all gone in a split second. This is a common dilemma for every individual. Is bankruptcy the answer?

Most of them tend to rely on lending institutions. With these, some may meet their daily needs. However, there are some who become submerge with too much debt that the end point is bankruptcy. When it comes to the point that there is no possible way to salvage your resources, filing for economic failure would be the last resort. Declaring economic failure can be a good thing for some.

Benefits of bankruptcy

In the process of bankruptcy, you will encounter chapter 7. Also known as “liquidation” this type declares that one may have his debts such as credit cards and medical bills forgivin. This is possible if one has not filed any economic failure for at least 8 years. This may help individuals deal with business and family related debts. This will give you the most protection in terms of your debt collection.

Chapter 7 will also allow you to keep your not liable properties. These properties include; motor vehicles, clothing, furniture, appliances, pension plans and retirement plans. Filing for chapter 7 would definitely save you from deep trouble.

Aside from freeing yourself from debt, you can also save your house when declaring economic failure. This is possible through chapter 13. Also known as “personal reorganization plan”, this chapter declares that one may pay their debts through future income instead of selling their assets.

This will allow you to provide an organized plan to settle your debts within three to five years. This chapter is recommended for individuals who have troubles paying their mortgages. However, this is only possible if you still have a job that allows you to receive a monthly income.

Get a fresh start and your life back upon declaration of bankruptcy

Despite the circumstances that declaring economic failure will bring upon you, there are still chances to restore your finances. Though it may seem absurd at first, it is possible since you can still start all over again. Once you’ve filed for economic failure, you will be protected from any debt collectors. With that, you can be assured that you have new beginnings.

Getting over with your economic failure is up to you. Once these situations happen, there are only two possible ways you can handle the situation. Either you stand up and surpass every obstacle that comes your way, or, another option you can do is to feel low and continue living your life with embarrassment and failure.

Most individuals think that declaring economic failure is the end. However, the truth is with determination you can still pull yourself up and become more experienced. Keep in mind that you learn through your failures. Experience is the greatest knowledge one can attain. Learn from your mistakes and avoid repeating history.

Consequences of declaring economic failure

It is true that once you’ve declared bankruptcy, you can be cleared of debts. However, provisions are set for you to follow. First, the exception of taxes, alimony, child support and student loans from being cleared and these exceptions must still be settled even with great depths.

Second, declaring economic failure will be kept a record. This entry on your credit report will last for 7 to 10 years. Once this situation occurs there may be a hard chance for you to get a job especially when you’re unemployed. Applying for a loan will also be hard for you as well. This will inform lending institutions that you failed to pay your debts. This means that when you filed for bankruptcy, your only option is to work hard and avoid creating further damage by applying for another loan.

Though declaring bankruptcy can be a wise decision, it is highly advised to prevent this from happening. Calculating every angle on how this may occur, it all comes down to the main reason of overspending. Living above your means will only give you uncontrolled financial problems.

A piece of advice is to spend your money wisely and saving today will be good option. With today’s unpredictable environmental conditions, there is no way of telling when or where you may get in trouble. Having sufficient funds may save you from debt and worries.

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Economic crisis can lead to severe financial dilemma. These may lead to various situations. The worst possible thing that might happen will be bankruptcy. However, not all individuals result to impoverishment, there may be times of delinquent payments. While others go to lending institutions for financial support. Some may find a way to pay their debts while other manages to budget their finances.

How do bankruptcies occur?

In situations where an individual is incapable of paying his debt can file for economic failure. This allows an individual to have a fresh start in terms of their finances. However, there are risks involved when economic failure is filed. These risks will be further explained in the later part.

Causes of economic failure may be of varying reasons. Most of them revolved under uncontrollable loans and credits. One example is medical debt. Hospital bills are highly expensive. When a person doesn’t have sufficient funds or savings account, financial drainage is unavoidable. Unemployed individuals may also experience economic failure. Today, everyday expenses will cost you fortunes. If don’t have any source of income it will lead to financial drainage or loans.

The worst thing that could happen is loaning with high interest rates. If you are planning on loaning, opt for lenders that offer lowest rates. Think about it, most rates are applied monthly. Once you’ve started your loan, you have to pay it as soon as possible. In some cases people just pay for the interest instead of the principal amount. Economic failure will soon follow if you can’t escape or fully pay your loan.

Effects of bankruptcy in your life

Once economic failure is achieved and filed it will stay on your credit reports for at least 10 years. Credit reports are not only important during loans. It also has an impact during job applications. An employer who sees economic failure in an applicant’s credit report would automatically declare incompetence.

There are other circumstances that can be affected by your economic failure. You may not be eligible to buy a house, obtain another loan or even get insurance.  Credit reports have high impact in your life after filing for economic failure. Not only would you be eligible in every financial support there is, your personality would also be downgraded. However, for some individuals they take it as a learning experience. Once they incurred economic failure, they try their best to get back on the road and avoid making things worst.

As general reminder to the public, declaring economic failure will not free you from all debts.  Taxes, student loans, child support and alimony are still paid regularly. As much as possible, find means and ways to provide these payments to avoid double jeopardy.

How to avoid economic failure?

The number one and most reliable way of avoiding economic failure is to live below your means. Budget your income. As much as possible, you must try to save half of your income for unexpected events. If you have some money you can apply for an insurance policy. They will serve as a financial support during accidents and hospitalizations. When purchasing for your things, keep in mind to choose only those that are needed. Budgeting is an important factor that would determine the success rate of this process.

Second thing you can do is to avoid debts or loans. When you are in deep trouble and loans or debts is inevitable, try asking your friends or family first. You can borrow some money without interest rates. Don’t be enticed by lending institution’s promotional statements. If you are qualified for bank loans you can try to apply for it. Compared to lending institutions, banks have lower interest rates. When applying for a loan, always compare interest rates. Opt for the lowest rate and loan for the needed amount only.

Third is to pay for your debts as early as possible or if you already have the money. Monthly payments maybe not seem as a big deal. However, if you meticulously compute your interest it has already doubled your principal loan. This are the common trouble one may encounter during loans. Once you’ve loaned a large amount of money, getting out of your loan would be a challenged.

Lastly, one way to regulate your funds is to avoid doing risky business transactions. It may be true that all business is risky. However, if you observe that your loss would be uncontrollable then as early as possible stop any transactions. Gambling is another problem that causes bankruptcy. Try to evade your bad habits. At this point you already know how to handle your finances. Use your critical thinking in every situation you are about to face.

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What are the Different Types of Bankruptcy?

Unfortunately, we as people, can fall on hard times in life. If life gets to the point where you are thinking of filing for bankruptcy, you will need to educate yourself on the different types of bankruptcy.

Chapter 7 Bankruptcy

a.k.a. liquidation, allows the consumer or business to give up nonexempt assets and walks away from most of their debts. In order to qualify, you must pass the means test. Means testing “refers generally to the eligibility for relief for debtors who have sufficient financial means to pay a portion of their debts.”[1] In short, the means test indicates that your income must be less than their state’s median income.

Chapter 9 Bankruptcy

Chapter 9 bankruptcy works just like Chapter 11 bankruptcy (next) and allows municipalities to reorganize the debt.

Chapter 11 Bankruptcy

Chapter 11 bankruptcy is a reorganization of debts. This type of bankruptcy is for individuals and more commonly, businesses, to restructure debt. Like Chapter 13 (see below), it allows the filer to create a plan to repay some debt while retaining assets. Chapter 11 is more complicated, and more expensive. This makes it financially feasible mainly for businesses and very rich consumers.

Chapter 12 Bankruptcy

Chapter 12 bankruptcy allows family farmers and fishermen with regular income to reorganize debt. It’s much like chapter 13, but usually stretches out over a three year period.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy is for consumers who need to restructure their debt. Some creditors will be paid back in full, while others will be paid a percentage of the debt. This type of bankruptcy also allows you to keep your assets. 

Note: If you do not qualify for Chapter 7 bankruptcy in the means test, you will be recommended for Chapter 13 bankruptcy.

Chapter 15 Bankruptcy

Chapter 15 bankruptcy and the model law on which it was based on is to provide effective ways for dealing with insolvency cases that involve debtors, assets, claimants, and other parties of interest involving more than one country. The general purpose of Chapter 15 bankruptcy is outlined in 5 statutes. 

• a. Promote cooperation between the United States courts and parties of interest and the courts and other competent authorities of foreign countries involved in cross-border insolvency cases.
• b. Establish greater legal certainty for trade and investment.
• c. Provide the fair and efficient administration of cross-border insolvencies that protects the interest of all creditors and other interested entities including the debtor.
• d. Afford protection and maximization of the value of the debtor’s assets.
• e. Facilitate the rescue of financially troubled businesses, thereby protecting investment and preserving employment.

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