Bankruptcy is a legally declaration and status of any one, a person or any other entity, declaring their inability to pay off the debts to their creditors.
Bankruptcy can be filing in court and the declaration is usually followed by an order imposed by the same.
In majority of the cases, bankruptcy is declared and filed in court by the debtors.
Bankruptcy, sometimes is confused with insolvency. It is to be remembered that Bankruptcy often concerned individuals whereas insolvency is applied for a country or nation.
Categories of Bankruptcy.
In any consequences, bankruptcy is an unfortunate event and most surprisingly, while some countries like the United States, UK, EU countries, Australia and Canada have very clear and strict rules for Bankruptcy, few other countries like India have not laid any strict rules on the same till now.
As per the United States law, Bankruptcy can be broadly categorized as:
- Chapter 7, more commonly known as liquidation or straight bankruptcy.
- Chapter 9
- Chapter 11, a more complex type of bankruptcy filed by business houses in very complicated and complex debts.
- Chapter 12
- Chapter 13 and
- Chapter 15.
Any bankruptcy filing should be within these 4 types and depends upon an individual or company’s credit status.
Now, let’s get acquainted with some legal aspects and consequences of Bankruptcy filing.
- One of the main consequences of filing bankruptcy is that it leaves almost a permanent mark on your credit history and shows the same for around 7 to years in one’s credit history.
- On the legal front, as soon as you file for bankruptcy in the court, the automatic stay order for bankruptcy issued by the court comes into the effect, which prevents the creditors to collect debt from the debtors and follow the rules and instructions laid by the court.
- Possible loss of any property of yours or the company’s is another consequences that is faced after filing for bankruptcy.
- On the individual front, your credit is affected the most in not so good way after you file for bankruptcy in the court.
- As per the court orders, any non-exempted assets (such as- cash, personal belongings, cars) are divided among the creditors for the debt recovery and then the debtor is freed of bankruptcy charges.
- While, filing for Bankruptcy may help you in clearing your debts, but effects badly your financial credibility and there’s always a risk that you or Your Company can again be bankrupted in next 8-10 years.