Sunday, September 30, 2012

Why File For Bankruptcy?

The rising debt conditions usually lead to bankruptcy. In fact, the system exists to lend a helping hand to those who are suffering from financial difficulties and those who are finding it extremely tough to repay their debts.

What Is Bankruptcy?
We often see in the business channels about companies filing for bankruptcy. It provides them with some form of safety from the creditors. Many people still fail to see that there are considerable state and federal laws governing this domain. The following sections will be dedicated to the discussion of this practice that is gaining widespread importance during these times.

Types Of Bankruptcy Chapters
There is something interesting related to the laws pertaining to bankruptcy. Earlier we saw that there are distinct state and federal laws for the same domain. If the state law challenges the federal law in some way or the other (it happens and is very unique to the fiscal condition of the debtor), the latter will always prevail. In the US, there are four chapters related to bankruptcy; and they are (a) chapter 7 (b) chapter 11 (c) chapter 12 and (d) chapter 13. The next time some company or individual files for bankruptcy please check out the chapter number. It will explain a lot about the type of protection the debtor seeks from the government.

Filing for bankruptcy can wipe out all the existing debts. This explains why such processes have found much favor in the eyes of the debtors.  It should also be noted that chapter 7 is the most common type of bankruptcy option that a person or a company can file. The liquidation arrangement depends up on a lot of factors. Now chapter 11 is different from the previous chapter because it will enable the debtors more time to 'reorganize' their debts. By activating it, the debtor will get an opportunity to pay off their liabilities within a stipulated period of time.

Debt Restructuring And Bankruptcy
Restructuring the debt is an important aspect that goes by various names these days. Debt consolidation is yet another interesting terminology used by the law to depict the same scenario. The chapter 12 is just a simplified version of its previous iteration. This chapter has enabled lot of options for the family farmers who are having a tough time in repaying their loans. The nature of the debt also determines the type of bankruptcy option that the debtor must avail. For instance, for mediocre debts, they can seek solace by activating the chapter 13. While taking loans from money lending agencies, it is important to have good notions about the projected rates of future income. This can help you to save money wisely - and thus escape from the wrath of bankruptcy.