For any business or ordinary household, bankruptcy is a term that we try to avoid. The notion remains that bankruptcy is a horrible thing to undergo from a financial perspective- a last resort when nothing seems to be working.

With millions of individuals in the United States under gigantic sums of debt and unable to pay them off due to unemployment or inadequate earnings, the number of bankruptcy filings are increasing every year. In 2017, a total of 38,062 bankruptcy petitions have been filed with an average of 152 business filings per day. This is a significant increase from 37,968 and 29,978 filings done in 2016 and 2015 respectively.[1]

The number of non-business filings have significantly increased as compared to business based filings since the year 1980. While the percentage of consumer filings to total filings of the year used to be 86.81% in 1980, it has risen to up to 97.07% in 2017. Business filings have dropped to less than 3% in total. This goes to show how household are becoming increasingly prone to unpayable and unmanageable debt and are being forced to opt for bankruptcy filing and declaration.[2] According to an analysis conducted by Bankruptcy Data in 2016, bankruptcy filings by public sector companies have increased over 25% in addition to the 46% increase that was observed in the preceding year, 2015.[3]

What Is Bankruptcy?

Bankruptcy can be defined as a federal legal court procedure, which helps individuals and businesses under huge debts to get rid of the burden and be rid of the obligation to pay back their creditors. It is applicable to only those people who qualify for bankruptcy filing. The debtor must disclose all of their properties, possessions, as well as the debts they owe to several creditors. Certain debts are unable to have bankruptcy declared on them, such as spousal debt or child support finances. Other debts can be discharged by the declaration of bankruptcy, and creditors will not be able to knock on your door about debt collection.

Types of Bankruptcy

While it is a way means to a new start, bankruptcy should generally be the last resort as it can have certain implications on the future of your credit and finances.

There are three primary types of bankruptcy:

  • Chapter 7 bankruptcy:

Also called liquidation or straight bankruptcy, the bankruptcy filed under Chapter 7 is done in the case when the debtor does not have sufficient income to pay back even a portion of all of his or her debt. In this case, the non-exempt property of the debtor is liquidated and is used to pay back as much of the debt as possible. The remaining dischargeable debt is discharged, and the debtor does not have to pay the creditors anymore.

  • Chapter 13 bankruptcy:

Also known as reorganization bankruptcy, this type seeks to restructure or reorganize the debt payments in accordance to the income of the debtor, distributing payments across a three to five year plan.

  • Chapter 11 bankruptcy:

This type of bankruptcy is primarily used for business, but can be used by individuals as well. It serves to reorganize existing complex debts into a more manageable and clear structure for it to be paid off.

Why Should I Declare Bankruptcy?

The common perceptions of bankruptcy is that it is a terrible thing to undergo. If a company or an individual decides to declare bankruptcy, we commonly relate it to a horrendous amount of debt and financial problems that will undoubtedly hurt their future. That is why it is surprising for many people when they are recommended to declare bankruptcy by experienced individuals and counselors.

Bankruptcy can be a good thing as well.  What many people fail to realize is that bankruptcy declaration is essential if someone wants a fresh start after becoming stuck at a dead end that leads to nowhere financially and socially. Some consider it to be a permanent damage to their credit, since the Chapter 7 bankruptcy remains your credit report for 7 years and Chapter 13 bankruptcy can remain up to 10 years. This presence of bankruptcy on the credit of the individual and business can be detrimental for taking loans, financing a venture, or getting a mortgage on a new house. While this is a valid worry, many debtors fail to realize that their credit is already irreversibly damaged by their loan and their inability to pay it back or manage it. As such, bankruptcy can be used to repair credit from its debt and loan damage.

By declaring bankruptcy, not only do you get to make a new financial start, you will be rid of the mental strain of constant creditor calls and alerts. You will have the ability to have zero debt, or a more manageable one with reduced monthly to weekly payments. While many think that declaring bankruptcy brings public shame, if you are an individual, you have the right to keep all of your financial information and details private.

 

Getting Help 

Declaring bankruptcy is no easy task. It requires courage as well as education and knowledge on the matter. If you are confused on deciding whether or not to file for bankruptcy or the process, you can employ the services of bankruptcy counselors and advisors. You can find several organizations and services that offer to guide you through the process. For example, Clear Bankruptcy is a service that pairs you will a qualified local attorney to help you file for bankruptcy.

[1] Aacer. (2017). Bankruptcy Statistics and Trends. Retrieved February 23, 2018, from http://www.epiqglobal.com/en-us/how-we-help/aacer-bankruptcy-case-search-and-monitoring/bankruptcy-statistics-trends

[2] United States Courts. (n.d.). Bankruptcy Filings. Retrieved February 23, 2018, from http://www.uscourts.gov/report-name/bankruptcy-filings

[3] Data, B. (2016). 2016 Corporate Bankruptcy Recap: Bankruptcies Up 25%; 41% of Filings from Oil & Gas/Energy Sector . Retrieved February 23, 2018, from http://bankruptcydata.com/public/assets/uploads/pdf/PR_011217.pdf