Bankruptcy is, plain and simple, financial planning for the future. Many people cringe when they hear the word bankruptcy because they do not know what bankruptcy actually is. When Elon Musk mentions that he might put one of his businesses into bankruptcy, everyone thinks it is a brilliant business strategy. Why? Because Elon Musk is a brilliant businessman who understands that if his business fails, he solves the problem, and life goes on. When it comes to an individual, the exact same thing is true, life goes on. But, it is much more difficult for an individual to make the decision to file for bankruptcy, because it’s not business, it’s personal.
When you look at bankruptcy as a financial planning tool, it changes one’s perspective from being smothered in debt and obligations that one cannot meet to a fresh financial picture where one sees opportunities and options.
When used correctly, bankruptcy can take someone from being behind the eight ball to being the winner of the game. Don’t get me wrong, bankruptcy is not to be taken lightly, but if used properly, it can propel someone years into the future and provide them with advantages and opportunities that were never available to them under their current circumstances.
In a nutshell, bankruptcy is the ultimate chess game whereby the person who files bankruptcy (called the debtor) brings all of his creditors and anyone with a claim against him into the bankruptcy court. All of the debtor’s affairs are sorted out. Some creditors may get paid and some may not. But, at the end of the case, the debtor gets his discharge and can move forward free of all dischargeable debts.
Bankruptcy is a federal court process whereby the debtor asks the bankruptcy court and judge for relief from his or her dischargeable debts. The debtor begins the process by filing a petition and schedules with the bankruptcy court under penalty of perjury. Once the debtor does this, the bankruptcy court automatically prevents collection of most, if not all, of the debtor’s debts in order to follow an orderly process so that one creditor does not gain an advantage over another. At the same time, the debtor is required to play by all of the bankruptcy code’s rules.
If the debtor is able to play by the rules and is eligible to have their affairs sorted out, a bankruptcy trustee will oversee the case. The bankruptcy trustee‘s job is to look into the debtor’s financial affairs and determine whether or not creditors will be paid. If there is going to be money to be paid to the creditors, the bankruptcy trustee will make sure that the debtor pays what is legally owed and the creditors receive what they should.
There are two different chapters under the bankruptcy code under which consumers can file for personal bankruptcy. Chapter 7 allows debtors to enter bankruptcy and exit rather quickly after a thorough vetting of their income, expenses, assets, and liabilities. It is the most commonly used Chapter under the bankruptcy code by consumers.
Chapter 13 allows an individual with regular income to re-organize his or her debts over a three to five year period. In chapter 13, the bankruptcy trustee keeps an eye on the debtor’s income and expenses over the life of the case, making sure that the debtor pays what is required by the bankruptcy code to their creditors.
After a thorough review of your financial situation, you may find out that bankruptcy is a possible option, but there may be other options for you to explore first. Bankruptcy is usually the last option for many people. If there are other options that are better for you, you may want to explore those first before filing for bankruptcy protection.
Bankruptcy may be able to help you cope with your financial situation at this point in time. If you are exploring whether personal bankruptcy may be an option for you, please give us a call to schedule your complimentary strategy session. You may find out that bankruptcy is not an option for you, and knowing that now is a good thing because it will help you eliminate the bankruptcy option so that you can focus on all other available options. But, if declaring personal bankruptcy is an option for you, it’s best to know as soon as possible so that you can plan your strategy.