Bankruptcy laws can also be used by businesses to get their house in order. These laws are covered under Title 11 of the United States Code (the Bankruptcy code). The relevant chapters are chapter 7, chapter 11 and chapter 13.   

Why Avoid Bankruptcy

Legal recourse should be used as a last resort. Avoiding bankruptcy is a better option; prevention they say is better than the cure.
There are many reasons why you should avoid bankruptcy like a plague. It affects your credit score bringing it down by 200-250 points. Unfortunately, this negative entry stays for the next 7-10 years making it very difficult to qualify for new loans. Chapter 7 bankruptcy is bad news for your property too. Certain assets are not exempted under chapter 7 bankruptcy making them attachable property once bankruptcy is filed.

The scope of Chapter 7 bankruptcy is limited and it does not extend to all debts. Some debts like student loan, back taxes and other unpaid dues do not fall under the ambit of bankruptcy law. In such cases it is best to avoid bankruptcy.

Bankruptcy laws create a lien against your property. This gives your creditor a claim on your property. Chapter 7 bankruptcy affects your personal finances as well making it difficult to buy or rent a home/car.

It is very tough to get an approval for credit/loan after you have filed for bankruptcy. Even unsecured loans are hard to come by. Credit card loans are available but at a high cost. The interest rates on these loans are too high to make it financially viable. 
 
Retirement plans are also partially affected. 401 k plans are a nice place to park your investment up to a million dollars; anything above will be used for clearing debts.  

How To Avoid Bankruptcy

You can avoid bankruptcy by any of these plans:

• Debt settlement
• Debt management
• Debt consolidation  program
• Payday loan consolidation

Debt settlement reduces the amount due by as much as 40-60 %. However, you will need to negotiate with the creditors or the debt collecting agency. If you are not comfortable with the idea of dealing with your creditors, you can seek help of professionals.

Debt management is another method of clearing all dues. This is done by keeping all dues current. This gives savings in the form of interest charges. Interest charges often form a huge chunk of all dues and clearing dues become easier when it is waived off.

Consolidating all debts is another way of clearing dues. Payment is easier as the dues are cleared by monthly installments. The burden of interest charges is also reduced as there is one single amount to pay. This gives saving in transaction charges as well.

If you are struggling with several payday loans then you can consolidate them. This makes payment easy and also saves interest charges.
 
Being debt free is important because it gives you peace of mind and freedom from financial hassles. The best way to avoid bankruptcy is financial discipline; avoiding unnecessary expenses, keeping borrowing at a low, paying off debts in time and so on. A debt free today ensures a better tomorrow.

Filing bankruptcy is a legal process that is used by a debtor in an effort to obtain relief from the debts they owe to their various creditors. The various steps involved in filing bankruptcy include gathering complete facts and records regarding the debts you owe and other financial matters, hiring a bankruptcy attorney, filing various bankruptcy forms as asked by your bankruptcy lawyer based on the type of bankruptcy you are claiming.

2. What does it mean by being legally bankrupt?

If an individual or organization files a petition for bankruptcy and the court releases its judgment in their favor, declaring them as bankrupt, the debtors are completely or partially discharged from the debts they owe. There can be two scenarios when a debtor is declared as bankrupt. He or she may have to sell off all their declared assets in order to settle the debts they owe. On the other hand, the bankruptcy court may allow them to continue with their business operation while paying off their creditors partially on a monthly schedule basis.

3. Who can file for bankruptcy?

The individuals or organizations that are not in a position to pay their debts with the available means and assets can file for bankruptcy. However, here you should note that bankruptcy laws have become far stricter now and you will have to meet high certain standards in order to be eligible to file for bankruptcy. As per the bankruptcy laws in the United States, an individual, a business organization, municipality, or family farmers can file for bankruptcy.

4. I am unable to pay the debts I owe but I want to carry on the business I am running. Which type of bankruptcy is the best option for me?

You may choose to go for the reorganization or rehabilitation bankruptcy, as described in chapter 11, 12 and 13. In this type of bankruptcy, you request the creditors to reduce their claims. For example, you may offer to pay 25 cents for each dollar you owe. You can pay the reduced amount of debt on a monthly schedule basis. This way, you get a chance to stay with your business operations while paying off your debts simultaneously.

5. I have filed for bankruptcy and I do not want to be disturbed by the creditors meanwhile. What are the legal options I have?

When you file for bankruptcy, you will get an “automatic legal stay of your debts” until the court gives a judgment in your bankruptcy case. During this period, your creditors will not be able to take any non-bankruptcy legal actions against you. Your creditors will not be able to legally compel you to make payments or pursue lawsuits etc. The procedure of this legal stay involves sending notice to your creditors to stay away from taking certain non-bankruptcy legal actions against you. If your creditors still try to make improper contacts to you, do inform your bankruptcy attorney regarding the same.

6. What is bankruptcy conversion?

Bankruptcy conversion is a procedure that allows you to transform from one type of bankruptcy claim to another. For example, if you have filled and submitted the chapter 7 bankruptcy form and now you want to claim for chapter 13 bankruptcy, you will have to cancel the old form and submit the new one with relevant details. However, bankruptcy conversion is not a free-of-cost service. You will have to certain amount as conversion fee.

7. Is it possible for the creditors to file a bankruptcy petition against their debtors?

The clause for involuntary bankruptcy allows the creditors to petition a court in an effort to get the debtors declared as insolvent so that the creditors could recoup as much money from the debtor as possible. However, the provision of involuntary bankruptcy petition is allowed only under Chapters 7 and 11. The creditors cannot file a petition for bankruptcy against their debtors under Chapter 13. What is more, if the court rejects the petition for involuntary bankruptcy, the debtor can ask the creditors to pay for the attorney fees and costs and various other expenses depending upon the specific case.

8. How many bankruptcy forms does a debtor need to fill and submit in order to file a petition for bankruptcy?

Your bankruptcy attorney may ask you to fill out any or all of the following bankruptcy forms.

•Voluntary Petition – If you are filing bankruptcy yourself
•Involuntary Petition – If the creditor has filed the court petition
•A list of Creditors that hold twenty biggest Unsecured Claims
•Summary of Schedules
•Schedule A – Real Properties you own
•Schedule B – Personal Property you own
•Schedule C – Property you have Claimed as Exempt
•Schedule D – Creditors that hold Secured Claims
•Schedule E – Creditors that hold Unsecured Priority Claims
•Schedule F – Creditors Holding Unsecured Non-priority claims

9. What are the expenses involved in filing bankruptcy?

While you are filing bankruptcy, you may have to pay for the following expenses.

•Bankruptcy Attorney fees
•Conversion fees – If you are changing the type of the bankruptcy claim at a later stage, such as converting the claim from chapter 13 to chapter 7
•Fees for credit counseling
•Amendment fees
•The reopening fees
•The splitting fees;
and much more depending upon your specific bankruptcy case.

10. What is Reaffirmation?

There might be the case when the certain debts you owe have been discharged after the court declared you as bankrupt, but you still want to pay the same. For example, you might have purchased a car on a car loan and you do not want to return the same even after the declaration of bankruptcy by the court. This is known as reaffirmation. In order to get you reaffirmation agreement, you will have to convince the court that the agreement is voluntary and nobody is illegally forcing you to do the same and that the reaffirmation agreement is in your best interest.

11. What are the situations in which the court may refuse to grant bankruptcy to the debtor?

Bankruptcy denials might be caused because of the following reasons.

•The debtor and the bankruptcy attorney hired by him or her could not properly explain the facts and records.
•The various declarations made by you are contradictory to each other.
•You could not obey the lawful orders imposed by the bankruptcy court.
•You tried to conceal or manipulate facts and records regarding your financial matters.
•You are a convict of bankruptcy fraud. For example, you tried to destroy or transfer certain properties in an effort to save those properties to be used in debt settlement.

12. How much does bankruptcy cost?

The cost of bankruptcy depends upon the nature and amount involved in your specific case and the kind of bankruptcy you are claiming. For example, if you have claimed for personal bankruptcy under chapter 7, all you may have to pay is just a small flat fee. On the other hand, if you have claimed for bankruptcy under chapter 11, it may cost you several thousand dollars.

13. What Are The Alternative Options To Avoid Bankruptcy?

Following are some of the alternative options.

•Hire a financial manager that could manage your finances and help you regain control of the same. Once your expenses and incomes are in your control, you can easily put your finances back on track.
•If you are a homeowner, you can refinance the same and use its equity to settle the huge piles of debts. You can even take benefit of the tax deductions in this regard.
•If you are availing any credit repair or debt consolidation services, make sure that company is highly credible.

14. Why should I file for bankruptcy?

In order to take a right decision in this regard, you must evaluate the following.

•The amount of debt you owe and the intensity of its impact on your financial life.
•Whether or not you are capable of paying off the debt.
•The risk factors involved in the same.
•The pros and cons of filing and not filing bankruptcy.
•Its affect on your social status and whether or not you will be able to live happily with that.
•The expenses involved in filing bankruptcy.

15. Am I eligible to request for bankruptcy insurance?

Yes, if you are among one of the following.

•If you are a self-employed person and have been declared as bankrupt.
•If you are a self-employed person and the court has approved your obvious incapacity to pay off the entire debts and have allowed you to reorganize the things to pay off the debts partially.
•If the bankruptcy has been declared for a commercial company and you are one of the business managers, administrators and working partners associated with that company.

16. Do I need to hire a bankruptcy attorney to help me with the bankruptcy proceedings?

Because of the complex nature of the bankruptcy laws, it is not an easy cake for a common person to be well aware of all the intricacies involved in the same. This is where only an efficient and experienced bankruptcy lawyer can help you out. Again, keeping in view the very fact that new bankruptcy laws are added very frequently, the need and role of an expert bankruptcy lawyer cannot be ignored.

Too Much Outstanding Balances Credit Cards

The number of credit cards you own and the overall amount of debt that you owe plays an important role in assessing your financial situation. Credit cards are also known as plastic money and they are a very convenient way of making payments, as you do not need to carry huge amount of cash with you all the time. However, the same convenience may also put you into deep financial trouble if you are not wise in using your credit cards. It is important for you to understand that credit cards cannot be treated as a funding source. They are in fact, the most expensive way of borrowing money. If you have two or more credit cards with too much outstanding balance to be paid off using the means and assets that you have, it is a certain warning sign for you.

Making Only Minimum Payments On Your Credit Cards

Some people try to keep the debts at a distance by only making the minimum payments, which is certainly not a very wise method to pay off the credit card debt. These days, the minimum payment does not even cover the amount of interest per month. Therefore, if you are making only minimum payments, you are getting into the much deeper financial trouble. This is again a warning sign for filing bankruptcy.

Paying One Credit Card Bill With Another Credit Card

Some people also try to pay off one credit card bill with another credit card. This can again put you on the harsh and unpleasant path of bankruptcy. If you are serious about keeping your finances on track and in an organized way, you must not make such mistakes. These mistakes are fatal and may eventually end up with you filing bankruptcy.

The list is much longer than can be covered in just one article. Credit cards are supposed to be used a convenient mode of payment and not as a tool to borrow money. If you are using it as a way to borrow money, it might be too expensive for you to afford. filing bankruptcy is something you would certainly not like to do. Therefore, you had better be wise.

Do Not Cross Your Budget

If you want to get your financial life untouched from the hammer of personal bankruptcy, the first and most important thing that you should do is not to cross your budget. You will have to learn to live within your means. Stay away from all such financial activities that can put you into debts. If you are using credit cards, you will have to very wise in charging the same. You must inculcate a habit to review your budget. Cut down on your expenditures wherever possible. I must add that more than sixty percent of the bankruptcy is followed by huge credit card debts. Credit card debts rise very fast because of the high interest charged by the credit card companies. Therefore, if you can manage without credit cards, it is just great.

Early Identification of the debt problems

Filing for bankruptcy is a situation that comes only if you realize things at a very late stage. If you are capable enough to identify the various debt problems at an early stage and get a solution for the same, you will never see face the heavy nights of bankruptcy in your financial life. You will have to learn to be proactive to the problems associated with various kinds of debts. You can put it in another way that you will have to control your debts much before your debts start controlling you. If you identify your debt problems at an early stage, you will have more time to put your finances back on track. The reason why most people claim bankruptcy is because of their habit of being hasty with their debt problems. This leaves no time for them to regain control of their finances and they eventually end up filing bankruptcy.

Impacts of filing bankruptcy

Some people have the misconception that filing for bankruptcy gives them an opportunity to re-decorate their financial life by getting away from old credits and acquiring new ones. Well, this is not how wise people think. It is very important for you to understand that filing for bankruptcy has very long lasting negative impacts on your financial life. You may have to struggle hard in order to regain control of your finances. Therefore, even if you are deeply drowned into debts, you are advised to first talk to your creditors and get to some common terms. If the creditors are ready to work out some arrangement for you, it will be a great help for you to avoid bankruptcy. You can also take certain initiatives from your side. For example, you may try paying off the debts by getting a part time job or by selling your assets.

If you want to avoid filing for bankruptcy, you can also avail the services of a debt consolidation or debt settlement company. Always remember that bankruptcy should always be the last option for you. It is important for you to understand that bankruptcy services is not an option you should choose to go for, rather it is an option that you are forced to go for.