How
Bankruptcy Works
by: John Mussi
Bankruptcy. a frightening
word with serious connotations. In recent years governments have been
cracking down, making penalties for bankruptcy more severe in an attempt
to make them more difficult to attain so that only those in serious
need can apply for them.
Despite the negative image
that is associated with bankruptcy and the various problems that come
along with declaring a bankruptcy, it doesn't have to be frightening;
after all, bankruptcy was designed as a way for those individuals and
businesses who find that their finances are out of control to get the
help that they need to organize their finances and pay off their debts.
Once you take the time to
understand what bankruptcy is and how it works, you won't find it as
scary as you did at first.
Defining Bankruptcy
Bankruptcy is a legal term,
meaning that an individual cannot within reason pay off their various
debts and have allowed the court system to take over their finances
for this purpose.
When filing for bankruptcy,
the court will appoint someone to work out the payments to your creditors
and to determine how much of your income must go to repay these debts.
The court will either allow you to make payments, or more likely will
deduct a portion of your paycheck toward this goal.
During this time, your credit
will be limited. both by legal action and by the reluctance of creditors
to issue credit lines to individuals who have declared bankruptcy.
Once the total amount set
by the court has been repaid, the bankruptcy will be discharged and
you will be able to start rebuilding your credit from the ground up.
Different Types of Bankruptcy
Several different types of
bankruptcy exist, defined by legal codes for certain purposes. The exact
types of bankruptcy available differ from one country to the next. in
the United Kingdom bankruptcy can only legally be applied to individuals
and partnerships, whereas in other countries such as the United States
or Canada they can be applied to businesses as well.
Regardless of the limitations
or allowances set by the government on who is allowed to declare bankruptcy,
the general purpose of bankruptcy remains the same.
Lasting Effects of Bankruptcy
While you are working towards
discharging a bankruptcy, your options for credit will be exceedingly
limited. Even after you've had your bankruptcy filing discharged, though,
you'll still find that you won't have many options for a while. many
creditors will still be hesitant to work with you from between six months
to two years depending upon the creditor and the service that you're
applying for.
You should also take care
with any offers that you do receive, because they will likely come with
high interest rates and additional fees attached.
Life After Bankruptcy
Bankruptcy isn't the end
of the world. it's actually a chance for a new beginning. As time goes
by, the bankruptcy on your credit report will begin to matter less and
less as you eventually start to establish new positive credit lines
and build up your credit again.
Just like negative reports,
your bankruptcy will eventually expire from your credit history; the
process may take up to seven years, and until it expires there will
still be those who are hesitant to deal with you.
Once it expires, however,
the negative reports that preceded it will also be long gone. and you'll
find that your newer reports are all that remain. |
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