In times of dire financial needs, it can sometimes seem as if the only way to turn is towards declaring bankruptcy. From small businesses losing out on profitable revenue streams and income potential to individuals feeling the wreckage of loans gone bad, it is a system that's relatively open to anyone in a poor financial situation. However, there are many incredibly large downsides to filing bankruptcy which is why many people look at alternative credit solutions first.
Of course, laws vary wildly from one country to another, with some having relatively simple procedures to others having nearly no formal system at all. In the United States of America, such proceedings are processed through the Bankruptcy Court system, which works in tune with State Court systems. While there are federal laws and procedures, the greatest influence on personal cases is state law. This leads to laws that are dramatically different from state to state, making it difficult to provide generalized advice for credit solutions to people living in the United States.
How Bankruptcy Cases Often End
No matter where bankruptcy is filed, though, almost all of such proceedings end in similar arrangements: either for debt to be relieved or for the debtor to work with their lenders to arrange credit solutions through payment plans. Restructuring, most often the ideal outcome for any case, leaves the debtor with payment plans, debt management opportunities and the chance to pay off their debt without having to have it relieved by the courts. In Chapter 7, the most common type in the USA, the debtor's property is often surrendered to the lenders, ensuring that they have at least some return on their loans.
Of course, this does not mean that everything is taken by the lenders. There are some possessions that are exempt from Chapter 7 rulings. Because basic clothing, some types of vehicles and other home goods are left out of debt proceedings, and are completely untouchable by banks and other lenders, this is among the bankruptcy-related credit solutions that are acceptable to most individuals. In many cases, the entirety of the debtor's property falls under the exempt items, leaving them with very little, or even nothing, to lose in terms of personal property.
Chapter 7 vs. Chapter 13 Bankruptcy
As earlier discussed, declaring bankruptcy does not always end in the complete relief of debts. In fact, in many ways, Chapter 7 is not the most appealing form. Chapter 13, a form where debts are arranged to be repaid, works by creating credit solutions through relatively simple payment procedures, allowing the debtor to pay back their debts progressively, over a period of time. By offering ultra-low interest rates, sometimes even flat interest, the amount that is paid back is relatively comfortable, especially when the debtor has regular access to funding.
In almost all cases of dire financial disaster, there are available bankruptcy alternatives. While declaring bankruptcy may appear to be a way out for some, it is a very limiting and restrictive procedure, stripping individuals of many rights surrounding finance and income. Before considering it, people should always investigate other forms of credit solutions, whether it is custom payment plans with a bank, debt consolidation, or even direct negotiations with lenders.
Related Reading:
- Five Bankruptcy Alternatives: Eliminate Debt Without Declaring Bankruptcy
- Bankruptcy and the Recession: Lessons of Risk Management and Self-Sufficiency
- Debt Consolidation Loans: A Simple Solution to Financial Problems
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