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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