What You Should Know about Bankruptcy Debts

 

The Truth about Bankruptcy

Just the mere thought of bankruptcy could send shivers down our spine. It is very frightening, although many people have filed for bankruptcy. Bankruptcy is a legally declared impairment of an individual’s ability to pay the creditors. In most cases, it is usually the debtor who files for bankruptcy or what is called voluntary bankruptcy. It may be filed by an individual or an organization. In involuntary bankruptcy, a creditor may file the bankruptcy petition against their debtor. It is their minuscule effort of recouping part of the bankruptcy debts that are owed to them. Studies show that the primary cause of personal bankruptcy is having overwhelming debts. Uncontrollable amount of debts coupled with an unlikely event such as a sudden medical emergency that is not covered by insurance (or a medical debt bankruptcy), death of a spouse, loss of a job or divorce are the usual reasons for filing bankruptcy.

What Statistics Reveal

According to statisticians and economists, the typical filers for bankruptcy debts are those who have blue collar jobs or high school graduates who are also manning the household and those who are in the middle income class who have enthusiastic and heavy credit records. The rate of people filing for bankruptcy is rapidly growing. At present, it is rated at 7 percent or about 5 persons in every one thousand people. That is precisely why bankruptcy laws are continually being enacted. The primary grounds for filing bankruptcy are also the reasons why bankruptcy laws are ensured so that both the debtor and the creditor are protected.

What Happens to Debt after Bankruptcy

Bankruptcy entails a legal process. It allows individuals to enjoy a fresh start, a new beginning after incurring an overwhelming amount on debts. A lot of people would ask what is going to happen to their debt after bankruptcy is filed. When bankruptcy has been filed, all your assets are immediately turned over to a court appointed trustee. Your “trustee in bankruptcy” will handle your assets by selling them without the need of your consent and distributing the proceeds of such sale to the creditors of your unsecured debts. After selling all of your assets, creditors are hindered and stopped to make any other collection proceedings. Hence, your bankruptcy debts shall be wiped out, and you will have a brand new start.

Prioritizing Bankruptcy Debts

If you are already at that point where you feel the need to file for bankruptcy, think twice. There are bankruptcy debts that should be prioritized over others, debts that if ignored, will cause the person filing for bankruptcy in a much graver situation. Your debt in bankruptcy should be properly prioritized so as not to risk yourself of losing your home. It is the most important debt that should be made payment to, the payment for mortgage or rent. It should be at the top of your list of important debts. Otherwise, you will end up both bankrupt and homeless.

Next on the list are payment for utilities such as water, electricity, and telephone. These are some of the basic needs that one can’t do without. Then the payment for your car should come next. But if you think that the car is no longer crucial to you at this stage as carpooling may be opted, it is best to consider selling it. Rather than risk it from being repossessed, selling it will cause you to have additional funds that you may use to pay your creditors or buy a cheaper car. Last on the list are your outstanding obligations to the IRS. These are some of the essential debts that need to be paid off first before making payments to non-essential debts. A financial advisor may assist you in making payments to your debt on time or as agreed upon with your creditors.