Bankruptcy: Types and Effects

When a person who want to get out of his debts but unable to pay his bills, and if he wants to start again financially, then he can do it through a federal legal process called bankruptcy. Bankruptcy can be said as a proceeding by the federal court which prohibits the creditors from continuing to collect debts from the person who has declared bankruptcy. This is until the debt’s are been sorted out as per the laws.

Types of Bankruptcy

• Chapter 7: In this type of bankruptcy, the court appoints a trustee who collects the non-exempt assets and then sells those assets and pay the creditors the moneys which is been collected during these sales.
• Chapter 9: This type of bankruptcy is filed by the municipalities and the railroad companies. This gives them an opportunity in getting out of the debts which involves restructuring of the debt by extending the period of payment.
• Chapter 11: When the business organizations want to reorganize their finance by removing their financial obligations, then this type of bankruptcy is been used by the organizations.
• Chapter 12: Based upon the regular income, if the farmers want to adjust their debts, then chapter 12 type of bankruptcy is been used.
• Chapter 13: Under the supervision of the court, the individuals are been allowed to the debts, it may be fully or partially, then it is called chapter 13 bankruptcy.
• Chapter20: A second filing is been done in case the debts are not cleared under the chapter 7 bankruptcy. Chapter 13 will be used when the debts are not cleared by chapter7.

Effects of Bankruptcy
The effects of bankruptcy could be positive and even negative

Positive Effects:

• If we declare bankruptcy, we need not pay the full debt, in most of the cases most of the debt is not repaid.
• When a person is in debts, and declares a bankruptcy then he won't be under the risk of having his utilities or automobiles from being repossession.
• The person who declares bankruptcy will get rid of the phone calls and wage garnishments from the debt collectors.

Negative Effects:

• When a person declares bankruptcy then he will not be allowed to pay for some things like child support, student loans criminal fines etc.
• Bankruptcy will not eliminate the mortgage or any other collateral loans of the holder.

Though bankruptcy can be an answer in getting out of the debt, still we should be trying to avoid this condition because the credibility would come under stake when bankruptcy is declared. By having a proper financial planning, we can avoid this situation of bankruptcy. Even after having a good planning and maintenance, if the person comes under debts then certainly filing for bankruptcy is a nice option so that he can restart again financially.