Could You Be Required To Pay Back The Bills Anyway?
The most widely held myth about bankruptcy is that it is the debtor's version of the "get out of jail for free" card in Monopoly. Even though many people know that bankruptcy affects your credit for seven to ten years, very few folks know that it's possible that you will need to pay back the debt anyway, even when you file a Chapter 7.
The official definition of bankruptcy is "a proceeding in court in which an insolvent debtor's assets are liquidated and the debtor is absolved of further liability." However, the commonplace definition of bankruptcy is probably "the process of fully wiping out your debts for free."
Within the majority of situations, the latter definition might be suitable, but in some scenarios, it's likely that even with bankruptcy, you will still need to pay back at least a portion of the debt.
So when is it likely that you will need to pay back your debts? Here are the most popular scenarios when you get all the negatives of personal bankruptcy (severe credit impact for 7 to ten years), but none of the rewards (you'll still have to pay back at least part of the financial debt):
1) You make far more than the average individual in your state. If this really is the case, then it is likely that you'll be forced into a Chapter 13 bankruptcy program. In a Chapter 13 bankruptcy, the judge orders that you pay all your disposable income to a court appointed trustee, who in turn disburses monthly payments to your creditors.
2) You've got assets. When you own a house or automobile, then it's possible that the bankruptcy court will make you sell them to produce sufficient cash to pay back your creditors. Chances are, if have a considerable chunk of change invested (unless it is in a tax-exempt account such as an IRA) then you will also be forced to liquidate it.
3) The loan companies can prove that you were fraudulent and never ever had any intention of paying them back.
For almost all of us it usually means that unless.
A) you don't have a good deal of equity in any of your property.
B) you do not have any assets like stocks, property, and so on.
C) you don't care about having to sell anything described in points A and B.
D) you do not care about having to surrender your disposable items for 5 years in a Chapter 13, then bankruptcy might not be your ideal option.
Your greatest alternative (when you own a company) might be to raise capital by expanding your firm through an initial public offering. Any company going public will overcome most financial problems it faces with the help of a skilled business consultant.
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