Tuesday, October 16, 2012

Filing For Bankruptcy As A Cure For Insolvency

Just the thought of declaring bankruptcy paints harsh, even repulsive, pictures within our minds. But for a huge number of people currently struggling with a sinking economy, it could be their only recourse.

When do you declare bankruptcy? That question looms in all our minds except those people who have a pre pack liquidation. How far down should you sink prior to deciding to raise both hands to call it quits and ask for the courts for a clean slate to start over?

Why Some People Won't Declare Bankruptcy?

In the 12 months that ended last year in September, more than a million Americans submitted for personal bankruptcy, an overwhelming 30% increase from the 2007 statistics, the Administrative Office of the U. S. Courts unveiled. According to Justin Harelik, a lawyer with Price Law Group in Los Angeles, there are thousands more who "are unofficially bankrupt" but are hesitant to file.

"I'm aware that the word itself carries so much shame and stigma. But it's right for a lot of people. " Mr. Harelik said.

Understandably so, being marked as a failure and the fear of a washed-up credit are hindrances to filing bankruptcy. However , those feelings can stop a lot of people from availing of financial benefits prolonged by bankruptcy. These may allow them to wipe off their financial obligations without losing personal resources like retirement accounts and even their home and car. Sadly, filing is delayed for too long until nearly all of their assets are gone.

"A lot of attorneys say they wish people would come earlier, before they emptied their retirement accounts or lost their car to repossession, " revealed Katherine M. Porter, a researcher with the Consumer Bankruptcy Project and Associate Professor at the University of Iowa Law School.

Due to the intricacies of bankruptcy, many individuals are suspicious of filing and don't have a hint about their options and the result of those choices.

Typical Misconceptions

A common misconception is the fact that declaring bankruptcy will ruin your credit. If you're thinking about bankruptcy, chances are your credit is shot to shreds anyway. "You might not end up that much worse off, " says Ms. Porter. Dealing with your debt could generally get your credit in better condition.

Another misconception is that you should hit rock bottom before filing. You cannot lose all of your assets in a bankruptcy as some assets which you will need to start over are safeguarded. Delaying till all your resources are worn out nullifies one of the purposes of bankruptcy : "to help people rebuild their lives on a better footing, " said Harvard Law School professor Elizabeth Warren, a lead researcher about the Consumer Bankruptcy Project.

Start Over And Progress

It was the desire to start over with a clean slate and move forward that drove Claire Morgan to file for bankruptcy last December. Aside from an outstanding $12, 000 in student loans, Ms. Morgan is struggling with $40, 000 in credit card debt - an amount higher than her $35, 000 annual income.

Ms. Morgan admitted, "Bankruptcy was the last thing I wanted. But it's better to be able to say 'I'm in the clear' than to be still struggling in five years to pay for $40, 000 in debt over a $35, 000 salary.

Most bankruptcy lawyers provide free preliminary consultation, said Ms. Porter. Visit the website of the National Association of Consumer Bankruptcy Attorneys that will help you search for a lawyer in your area.

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