Going bankrupt is never easy – but it does not have to be a hard thing to understand.
There are both good things and bad things about it, and you should know about them to make smart financial decisions.
Find out what is and how does bankruptcy work down below!
What is bankruptcy?
Bankruptcy is a complex process that helps an individual deal with his or her debts. Depending on where you live, declaring bankruptcy could help you get rid of all your debt or a percentage of it.
The point of bankruptcy is to help people troubled with debts to get a clean, fresh start. Even though it is not a free-get-out-of-jail card, declaring bankruptcy could work as the first step towards a new beginning for a lot of people.
How does bankruptcy work?
Depending on the type of bankruptcy you declare, there are two possible scenarios:
- The first, and most common one, is when you declare bankruptcy and you get liquidated. The state will appoint a person to oversee your assets, debts, and to communicate with your creditors. You will lose most if not all of your assets. Most if not all of your debt will be forgiven.
- The second, and less common one, happens when you request time to pay your creditors. You’ll usually get a 3- to 5-year plan to restructure your financial situation. If you decide to follow this option, you’ll get to keep certain assets and manage to eliminate all your debt.
What happens after I declare bankruptcy?
Bankruptcy is far from over once you declare it. There’s a long period (that can take several years) where you won’t be able to get loans, credit cards, and other financial-related stuff.
After that time period is over, you’ll usually have to build your credit back up. You’ll be debt-free and ready to start a new life.
Keep in mind certain debts, like alimony, won’t be forgiven when you declare bankruptcy.