What Happens When You Are Declared Bankrupt?
What comes into mind when we mention bankruptcy is that someone is running low on cash? Ideally, bankruptcy is seen by most people as a dirty word, but it’s a very simple concept. Bankruptcy happens when all your debts are written off or suspended because you cannot pay them within the period you specified.
Bankruptcy is an order from the court that may last for a year, in the case of the UK, after which you get a fresh start, or you’re discharged from bankruptcy. Here is what happens when declaring bankruptcy.
- You create more time to clear your debts
When declaring bankruptcy, you are given more time by the court to clear your outstanding debts. When you’re struggling financially, filing bankruptcy gives you that opportunity to pay down a significant part of your debt with time.
- Stop debtors from collection and repossession
Bankruptcy is also an order from the court that stops those you owe from collecting your debts or repossessing your property. It grants you an automatic stay, keeping creditors off from deducting money from your account or going after any of your assets.
This way, you have all the time to work closely with the court and the creditors as you determine your next move.
- You may lose part of your property
When you declare bankruptcy, you may end up losing part of your property. According to Chapter 7 bankruptcy, an individual declaring bankruptcy is supposed to sell part of their assets or property to clear a portion of what they owe others. In this case, the court requires that some assets like cars, houses, and retirement accounts are exempted from liquidation.
Alternatively, when you opt for Chapter 13 bankruptcy, you don’t have to worry about liquidating part of your assets to clear debts. In this case, your debts are reorganized by an order from court so that you pay them off partially or in full in the next 3-5 years.
Note that creditors have the right to go for your assets if you don’t comply with the plan as provided by the court.
- It damages your credit score
The only downside of filing bankruptcy is that most creditors will shy away from lending you money; the truth is that declaring Chapter 7 bankruptcy means that all your debts may be eliminated. These records can stay in your credit report for many years. During this period, you may find it challenging to secure a loan from most lending institutions.
If you still want to borrow from creditors, you should go for Chapter 13 bankruptcy. It means you are still paying your loans, and these records can only stay in your credit report for up to 7 years.
In most cases, credit scoring models tend to favor new information over old information. That means you are likely to change your credit score over time even with bankruptcy still on your report.
Is there anything good about filing bankruptcy? Well, when you file for bankruptcy, it gives you relief from your debtors. The court gives you enough time to find a way of clearing your debts. Those you owe money will stop contacting you as soon as you declare bankruptcy, and this gives you some relief to focus on other things.
Bankruptcy was introduced into legislation to help those who owe others a lot of money find relief from pressure and stress. Filing bankruptcy allows you to save part of your income from clearing all your debts. You can still learn more about bankruptcy today here https://vohwinkellaw.com.