Bankruptcy – Not For The Faint Hearted

Inability or impairment of ability of individuals or organisations to pay off their creditors is known as bankruptcy. Normally individuals and business establishments initiate the process of bankruptcy but sometimes a group of creditors can ask for a declared state of bankruptcy in order to recover money owed to them.

The law of bankruptcy serves the primary purpose of giving a second chance to the honest debtors by relieving them from most of the debts and to enable the debtors to repay the portions of the debts with their available financial resources.

To keep the financial ship from sinking, declaring bankruptcy should be treated as an absolute last resort. This emotionally difficult choice can be carried out through a relatively simple process. Information detailing property, income, creditors and debts should be provided to the court and further collection efforts by the creditors is prevented by the issuance of a notice by the court to the creditors.

Child support, alimony, recently accrued back taxes, loans availed by students, large purchases made recently and penalties or fines of government agencies cannot be evaded by filing bankruptcy.

A negotiation with the creditors to reduce the extent of monthly payments should be explored prior to filing bankruptcy.

Non-exempt assets which can be divided among the creditors are permitted by the laws of bankruptcy. In addition, the bankruptcy declaration permits the debtors to be discharged from most of the financial obligations even if debts are paid in full after the distribution of non-exempt assets. Through a legally binding “Stay” the debtor is protected from extra bankruptcy action by other creditors. The creditors cannot demand payment, garnish wages or continue with lawsuits.

In its strictest legal sense, bankruptcy relates only to partnerships and individuals in the United Kingdom. Even though various different procedures such as administrative receivership, administration or liquidation are followed in the cases of companies and corporations, it is often wrongly referred as bankruptcy in general conversation and by media.

A licensed insolvency practitioner or a civil servant (official receiver) is usually appointed as a Trustee in bankruptcy cases.

After the introduction of Enterprise Act 2002, a bankruptcy in United Kingdom normally can not last longer than 12 months or less if the Official Receiver files a certificate in the court stating that the investigation is complete.

After the liberalisaion of the bankruptcy regime by the Government it is expected that bankruptcy cases will increase.

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Alternatives To Filing Bankruptcy?

There is just no easy way to get out of debt, you have to face up to the consequences. A bankruptcy is not always the answer, as the effects are long lasting. There are four ways to handle debts that are out of control, listed in best to worst in regards to the effect it will have on your credit:

If your credit isn't in terrible shape, can you reduce your other expenses, even if it means making hard choices or just change your lifestyle to fit your income? Some ways to do this:

Alternatives:

Selling the second car
Pulling equity out of your home

Alternatives To Bankruptcy

Many people want to file bankruptcy the moment they realize they are in over their heads, and they feel like there is nothing they can do to get out of debt. Bankruptcy however, should be used as an absolute last resort- after all other options have been thoroughly researched and exhausted.

Before making the decision to file bankruptcy, consider each of the following alternatives:

• Refinancing
• Debt Consolidation
• Debt Settlement
• Debt Negotiation

If after you’ve considered each bankruptcy alternative, you still find that your personal debts are greater than the money you have available to make payments each month, you may have no choice other than bankruptcy.

Debt Management Help

Debt has a way of creeping up on us if we let it. It's important to keep our debt at reasonable and manageable levels, or we could end up incurring insane interest charges and scraping to make our payments. Even for those who manage debt well, unexpected life changes can result in difficulty making ends meet.

When we find ourselves having problems with debt, the first course of action is to take a look at the budget. Finding ways to cut back on unnecessary expenses can help us pay down debts and keep monthly bills current. But what happens when we can't solve our debt problems with budgeting?

Sometimes we need outside help. It's hard to go to someone else when you're having money troubles, but if you don't gain control over your debts, your credit rating will suffer. So it's important to take charge before it's too late.

Some debtors turn to debt consolidation as an answer to debt problems. They transfer high-interest debts to a lower interest credit card, or they put up the equity in their homes to get the money to pay them off. While these options can provide lower payments, they are not without drawbacks. Closing numerous accounts and putting all of your debt into one account can negatively affect your ratio of debt to available credit, lowering your credit score. And if you use your home equity to secure the money needed to pay off debt, you're putting your home at an unnecessary risk.

Another popular option for those with debt problems is credit counseling. Credit counseling agencies offer help with budgeting, and in some cases, they will set you up with a debt management plan. A debt management plan involves negotiation with creditors to obtain lower interest rates and lower payments. The debtor makes one monthly payment to the credit counseling agency, and the agent forwards payments to each creditor.

A debt management plan can help you get out of debt faster, but it can also impact your credit. A note is added to your credit report stating that you are undergoing credit counseling. This means that you can't get new credit. However, the notation is removed once you've paid off your debts.

It's also important to make sure you're dealing with a reputable credit counseling agency. Some charge high fees or fail to make payments to creditors on time. There have also been some that were found to be outright scams, keeping the money that debtors sent them to pay their bills with. When considering credit counseling agencies, make sure they're members of the Association of Independent Consumer Credit Counseling Agencies (AICCCA) or the National Foundation of Credit Counseling (NFCC). These organizations regulate and monitor member agencies, making sure that they operate legally and ethically.

An overabundance of debt can wreak havoc on our finances and our credit scores. It can also be the cause of undue stress. By seeking help at the first sign of trouble, we can often prevent our debts from spiraling out of control.