Financial Planning: Get Answers About Bankruptcy
Before Its Too Late
Author: Deanna Mascle

The very word "bankruptcy" puts fear into many people's hearts.
For years, the word has been equated with being destitute, being
unable to pay bills and being financially insecure. But is that
all that bankruptcy is about? The truth of the matter is that
many people simply don't understand what bankruptcy really is.
For many people, bankruptcy is a way out of a bad situation and
a hand up when they need it most. It is also a life changing
experience. These questions and answers are designed to teach
you about bankruptcy, what it is, what it can do and what it
cannot do.

What is bankruptcy?

Bankruptcy is a legal declaration of the inability to pay your
creditors. This does not mean you have no money. On the
contrary, many people who declare bankruptcy have enough money
to live on. Instead, it means that you do not have enough money
to match your basic living expenses and pay people to whom you
owe money. How much this is can vary from person to person
because every person needs a slightly different amount of money
to meet their living expenses. Since there is no set amount,
bankruptcy is often granted by a judge.

How do I apply for bankruptcy?

Laws very from state to state, of course,  but applying for
bankruptcy isn't very hard. At its base, it simply requires the
filling out of bankruptcy paperwork. This paperwork will ask you
about various items, such as your current income and your
current assets. Using this paperwork, the bankruptcy judge will
decide if you qualify for bankruptcy and how it will work for
you. You may want to speak with a lawyer before filling out this
paperwork. A lawyer will be able to inform you of what kind of
bankruptcy would best suit your needs and will help you identify
some of the particulars.

How does bankruptcy help me pay my debts?

There are several different types of bankruptcy, all of which
function in different ways. Businesses have several different
versions of bankruptcy, some of which are useful for
individuals. In general, should you need to file for bankruptcy,
one of three things will happen. Either you will be required to
pay a fixed amount per month until your debts are paid off, your
assets will be liquidated and sold off to pay your debts and you
will pay monthly to cover the rest, or your assets will be
liquidated and sold off and then you will be absolved of any
further debt. With any of these options, creditors can not
attempt to collect above and beyond the agreed payment.

What are the most common types of bankruptcy?

The most common types of bankruptcy are called Chapter 7 and
Chapter 13. A Chapter 7 type of bankruptcy is a basic
liquidation. This is when the courts sell your assets, use the
money to pay off creditors, and call it even. After that,
creditors are not allowed to attempt to seek further payment.
Chapter 13 bankruptcy is rehabilitation with a payment plan.
This is the kind of bankruptcy you file if you have steady
income. It cancels debts up to a certain date and fixes a
payment per month for anything else owed. Under Chapter 13
bankruptcy, assets are not liquidated, but it does require
certain amounts of payment every month.

What happens to businesses that file for bankruptcy?

Essentially, the same thing as happens to individuals. Either
the business is shut down, their assets liquidated and their
creditors paid off or they set up a payment plan and pay a
certain amount per month. The only difference is when it comes
to Chapter 13 bankruptcy and what is considered "disposable
income." For businesses, disposable income is generally taken to
mean "profits," although there is still some wiggle room here.
Some less than honest business people will quickly give
themselves a raise before filing, thus making it look like they
make less profit than they do. However, barring small details,
it is essentially the same for a business as it is for an
individual.


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