Bankruptcy is a legal proceeding carried out to allow individuals or businesses freedom from their debts, while simultaneously providing creditors an opportunity for repayment.
Bankruptcy can allow you a fresh start, but it will stay on your credit reports for a number of years and make it difficult to borrow in the future.
Declaring bankruptcy can help relieve you of your legal obligation to pay your debts and save your home, business, or ability to function financially, depending on which kind of bankruptcy petition you file. But it also can lower your credit rating, making it more difficult to get a loan, mortgage, or credit card, or to buy a home or business, or rent an apartment.
The obvious answer for why you should declare bankruptcy is that you are drowning financially and no one – not banks, not online lenders, not family or friends – will throw you a lifeline.
The millions of people who lost their jobs or businesses because of the coronavirus, have some hope because of bankruptcy. They still had bills to pay, and in many cases, no way to handle them. That’s what bankruptcy was meant to address. It’s not a bailout. It was created to give people a chance to get back on their feet financially and restore their peace of mind.
If your bills have grown to levels your income simply can’t handle, having your debts discharged through bankruptcy is a safe, legal and practical choice.
The second wave of the COVID-19 pandemic and the partial lockdown being announced in some of the states are bringing back fears of last year’s events. Salaried borrowers struggled to repay loan instalments every month. Companies had laid-off employees or reduced salaries. To provide financial-aid, there was a loan moratorium announced for the individual borrowers by the Reserve Bank of India (RBI) from March to August 2020. But, there were several instances of borrowers being unable to repay loan instalments on time. And borrowers had reached out to the respective banks for loan restructuring.
Numerous salaried borrowers fell into a debt trap by taking pay-day loan schemes, personal loans from fintech lenders and revolving credit card dues at higher interest rates (between 36 and 48 per cent per annum). Now, if your source of income seem dries up due to fresh lockdown curbs, it may be difficult to service multiple debts. In these situations, a salaried borrower can seek initiation of insolvency and bankruptcy proceedings in respect of outstanding debts in the event of his/ her inability to repay loans when they become due.
Perhaps the most well-known consequence of bankruptcy is the loss of property. As previously noted, both types of bankruptcy proceedings can require you to give up possessions for sale in order to repay creditors. Under certain circumstances, bankruptcy can mean losing real estate, vehicles, jewelry, antique furnishings and other types of possessions.
Your bankruptcy can also affect others financially. For example, if your parents co-signed an auto loan for you, they could still be held responsible for at least some of that debt if you file for bankruptcy.
Finally, bankruptcy damages your credit. Bankruptcies are considered negative information on your credit report, and can affect how future lenders view you. Seeing a bankruptcy on your credit file may prompt creditors to decline extending you credit or to offer you higher interest rates and less favorable terms if they do decide to give you credit.
Depending on the type of bankruptcy you file, the negative information can appear on your credit report for up to a decade. Discharged accounts will have their status updated to reflect that they’ve been discharged, and this information will also appear on your credit report. Negative information on a credit report is a factor that can harm your credit score.
Bankruptcy laws help people who can no longer pay their creditors get a fresh start. Once a debtor files for bankruptcy, creditors are prohibited to take any action against the debtor, unless they first appear in bankruptcy court, and file a motion with the bankruptcy court. Therefore, once a debtor files for bankruptcy, a creditor may not file suit against the debtor, obtain a judgment against debtor, call or communicate directly with the debtor, or take any steps to collect any debt from the debtor. That’s why it is most commonly referred to as “Bankruptcy Stay”.
Aishwarya Says:
I have always been against Glorifying Over Work and therefore, in the year 2021, I have decided to launch this campaign “Balancing Life”and talk about this wrong practice, that we have been following since last few years. I will be talking to and interviewing around 1 lakh people in the coming 2021 and publish their interview regarding their opinion on glamourising Over Work.
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We are also running a series Inspirational Women from January 2021 to March 31,2021, featuring around 1000 stories about Indian Women, who changed the world. #choosetochallenge