Excessive debt and foreclosure are every homeowner’s worst nightmare. And many people see bankruptcy as the best way out for these types of financial problems. However, this is where people get locked in, as bankruptcy stays on credit card for a long time (more than 10 years), which means going forward in life can be very difficult. That’s aside from the updates in bankruptcy law (which was passed in 2005) that includes strict restrictions that makes it even more complicated and difficult to petition for bankruptcy. This entry will breakdown some of the things you need to know about bankruptcy.
What is Bankruptcy?
Before we dig deeper into this subject, we need to answer the most basic question – ‘what is bankruptcy?’ By legal definition, bankruptcy is a legal action involving a business or an individual who is unable to pay outstanding debts. The process starts with the debtor filing for a petition or on behalf of creditors. All of the debtor’s assets are then assessed and measured in value so it can be used to repay a portion of outstanding debts. After the proceeding’s successful completion, the debtor will be free for any financial obligations incurred prior to filing the petition.
Breaking It Down
This legal process offers businesses or individuals a good chance to start anew by seeking forgiveness for debts that can’t be paid, but still offer creditors a chance to get a percentage of the debt based on available assets from the debtor. In principle, it’s a good way back up businesses and individuals, and gives them another chance and provides creditors a measure of payment from the debt.
Filing for Bankruptcy
When filing for bankruptcy, the petitioner needs to clarify to the court how he got into the financial problem he’s currently in. The court will then ask the petitioner list down all available assets, along with your outstanding debts.
Your assets will be then divided into 2 categories:
Exempt Assets – the available assets can’t be used to pay outstanding debts. Example of which includes some parts of equity of your home, automobile, personal belongings, etc.
Non-Exempt Assets – are assets that can be confiscated and sold to repay creditors for the outstanding debts. Examples of which includes home properties except for the debtor’s recreational vehicles such as boats, primary residence, etc.
In the same way, outstanding debts can also be classified into 2 categories:
Secured Debts – including loans where creditors earn security interest in a property made as collateral. Assets bought with credits can be the debtor’s second home, car, boat, etc.
Non-secured Debts – these are debts that are not secured by property, such as medical bills, credit cards, personal unsecured loans, etc.
For the court, secured debts are very important, as non-payment will compel creditors to claim properties chosen as collateral.
After filing and completing all the necessary information to the court, the court trustee will then impose a period to make sure all secured debts are repaid. Subsequently, the court will order a mandatory ‘stay’ to keep creditors from physically hurting the debtor throughout the foreclosure and confiscating your properties. ‘Stay’ will also keep creditors from pursuing lawsuit against the debtor.
For more about bankruptcy and debt solutions, check out Debt Mediators today. Visit them online at https://www.debtmediators.com.au/bankruptcy/.