Drowning in debt and won’t be able to pay it off? If you think filing for bankruptcy your last resort, read on to know everything about it.
If you’re finances have tanked and you’re convinced that you will not be able to repay your debt by any means, this article is for you. Let’s take the example of an individual swimming in a sea of mortgage debt, Credit Card debt, student loans, Personal Loan EMIs, and medical bills, leaving him/her financially devastated. If the person doesn’t see his/her situation changing in the near future, bankruptcy might just be the best answer.
Additional Reading: Handling Debts 101: Ways To Become Debt-Free
What does it mean to file for bankruptcy?
If you’re caught in an inescapable debt trap, don’t worry, all is not lost. Bankruptcy laws were formulated with an aim to give people whose finances have collapsed, a chance to begin again.
Filing for bankruptcy is a legal process which includes a reduction, restructuring or elimination of debts. By filing for bankruptcy, an individual declares that he/she is in no position to repay his/her debt.
Let’s say that an individual has taken a Personal Loan and is unable to pay for it. In that case, the concerned bank will be well within its rights to consider the individual a defaulter. Filing for bankruptcy is a way to raise the white flag when faced with an insurmountable amount of debt that you will not be able to pay off at all.
Additional Reading: Warning Signs That You’re Headed Towards Bankruptcy
When should you file for bankruptcy?
In the event that a borrower is caught in a debt trap and is unable to pay off a loan or debt because he/she has exhausted the resources, it’s wise to consider filing for bankruptcy so that the debt cab be waived off.
Remember that the individual will be eligible to file for bankruptcy only if his/her liabilities exceed the combined movable and immovable assets. Before filing, the debtor must prove that his/her assets are not sufficient for clearing off the existing debt.
Before starting the process, an individual must compile his/her financial records including the debts, assets, income, and expenses to thoroughly assess the situation. It’s advisable to seek legal counsel before filing for bankruptcy to the court.
Additional Reading: Facing A Bankruptcy? Here’s How You Can Set Things Right
What happens after you file for bankruptcy?
A resident of Mumbai, Kolkata or Chennai will be governed by the Presidency Towns Insolvency Act, 1909. All other places in India fall under the Provincial Insolvency Act, 1920. After bankruptcy has been filed, the court analyses whether the conditions for bankruptcy have been met. Note that accepting or rejecting the application is at the discretion of the court.
After the application is admitted, the property rests with a “receiver” appointed by the court. This official distributes the assets of the borrower among the creditors, unless an alternative compromise proposed by the debtor has been accepted by the creditors and the court. After completion of this process, the borrower will be discharged from bankruptcy by the court, thereby giving him/her the opportunity to start afresh.
If the petition is accepted, the debtor will be cleared off the debt. However, note that on filing for bankruptcy, his/her Credit Score is likely to take a big hit. A drop in the Credit Score decreases the eligibility for loans and hampers the chances of receiving credit in the future. So, filing for bankruptcy should be the last resort.
Additional Reading: Ways To Rebuild Your Credit Score After Bankruptcy
Under what conditions does applying for bankruptcy fail?
A bankruptcy petition may fail under the following circumstances:
- The court has revealed fraudulent activities of the debtor.
- The debtor fails to provide the requisite tax documentation.
- The debtor fails to account for any loss of value in assets.
- The debtor transfers property with the intent to hide it from creditors.
- The debtor deliberately destroys or hides documentation and records.
- The debtor acquired new assets during the bankruptcy proceeding and refrained from notifying the court.
- The debtor failed to provide additional documents asked during review or audit of their case.
- The debtor failed to obey a lawful order.
Additional Reading: Potential Debt Traps And How To Prepare For Them
Admitting that you need help getting out of debt is difficult. This is where bankruptcy laws come in! If you have a nerve-racking outstanding payment, it may be time to seek help. Ignoring calls from your creditors and the huge pile of unpaid bills is not the solution.
If you’re caught in a cash crunch and need financial solutions to put your finances back on track, give us a shot! We’ve got everything finance related under one roof!