Bankruptcy Alternatives
In recent years, more and more people have been using bankruptcy to eliminate unmanageable debts. One alternative is for the debtor to write to the creditor and explain his financial standing. The debtor can give a detailed plan about how he will pay back his debts, and if the two can come to some agreement, all new arrangements should be set out in writing in order to be legally binding. The creditors may even advise the debtor on other bankruptcy alternatives.
The debtor may also find liquidation as a viable option. Here, the debtor should consider selling some assets and purchasing cheaper alternatives i.e. selling one’s home and then moving into a rental.
Voluntary Bankruptcy
Debtors can legally declare they are unable to pay outstanding debts. Here, the debtor starts the bankruptcy action by proactively seeking protection from creditors. After the creditors are notified of the debtors’ filing for voluntary bankruptcy, the court will investigate the case in order to either approve or deny the bankruptcy request. Voluntary bankruptcy differs from involuntary. In voluntary bankruptcy, the creditors are the ones who proactively pursue legal means to have a party declared bankrupt. In involuntary bankruptcy situations, the debtor must prove why the action should not be approved or why their assets should not sold.
Debtors who seek voluntary bankruptcy generally have no other viable solutions and in some cases they may be able to retain certain assets. In some jurisdictions, a debtor can hold onto assets that are considered necessary to earn a living. Other jurisdictions state the debtor’s family’s primary residence is a different kind of asset and thus immune from liquidation. Other jurisdictions state that certain kinds of loans, specifically mortgages, are exempt from bankruptcy actions, and the debtor will still owe money on his home, regardless of the state of his bankruptcy.
Bankruptcy Liquidation
Bankruptcy liquidation involves selling all assets to pay outstanding debts. By requiring the sale of certain assets to repay some of the debt, the court of jurisdiction ensures that creditors receive at least some compensation. Liquidation also benefits the debtor, who is freed from a debt load he could not pay off under any circumstances. The rules for filing for bankruptcy liquidation vary by jurisdiction, and the appropriate assets also vary. Assets considered necessities are generally exempt from sale. Basic clothing, household appliances, and working equipment would likely be considered necessities and thus be immune from liquidation.
Bankruptcy Exemptions
A person is entitled to keep certain amounts and assets when filing for personal bankruptcy in order to maintain a basic standard of living. Some exemptions include the following: (1) Any personal injury compensations payment up to $18,450; (2) life insurance policies with a value of $9,850; (3) $20,200 in equity; (4) motor vehicles valued up to $3,225; (5) unused portions of homesteads up to $10,125; (6) up to $9,850 of household items; (7) Work-related books and equipment up to $1,850.
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