A six-month delinquency in paying credit card bills, mortgage, student loan or other loans would force creditors or a bank to consider an account as bad debt, a cause to have it referred to a collection agency, the job of which is to make the individual or business firm pay (often through harassing tactics).
Financial difficulties, however, which eventually leads to overwhelming debts, can be dealt with through the filing of Bankruptcy, a legal declaration of an individual’s or a firm’s incapacity to pay debts. This legal remedy was specifically designed to save debtors from crushing debts – to give them a brand new financial start.
As explained by the Bradford Law Offices, PLLC, there are different chapters under the U.S. Bankruptcy Code, each designed to address the specific financial situation of individuals, families or firms.
- Chapter 7, also known as liquidation bankruptcy, enables a person or a firm to pay his/her debts through the liquidation of some of his/her assets. With regard to business firms, these will need to cease operations, as a court-appointed trustee sells or liquidates all assets owned by them. Residual proceeds, after having paid all creditors, will be returned to business owners.
- Chapter 9, which allows municipalities – cities, towns, villages, taxing districts, municipal utilities, and school districts to reorganize.
- Chapter 11, or business reorganization, the business owner usually acts as trustee (if the court does not appoint one); he/she also becomes a debtor-in-possession since the law allows continuous operation of his/her business.
- Chapter 12, which is designed for farmers and fishermen with a regular annual income and who own the whole or more than half of the farming/ fishing business; and,
- Chapter 13, which allows a debtor to make a three-year or five-year proposal through which to pay his/her debts.
- Chapter 15, a bankruptcy filings that involves parties from more than one country.
The United States Courts says that filing bankruptcy can help a person by discarding debt or making a plan to repay debts. A bankruptcy case normally begins when the debtor files a petition with the bankruptcy court. A petition may be filed by an individual, by spouses together, or by a corporation or other entity.