Bankruptcy enables recovery from financial setbacks and for people to begin getting back on track financially. It is also regarded as a legal dismissal of debts.
The term is often used interchangeably with the term “insolvency,” even though they don’t mean the same thing.
Not everyone qualifies, while a means test may need to be passed. Only a court can approve a filing, following which, the court appoints a Trustee.
Josie is a business owner, considering filing for bankruptcy. She is weighing the pros and cons of the different types, including recovery from them.
Types of bankruptcies:
If there aren’t too many assets to liquidate, it may be ideal. It’s typically ideal for people with lower levels of income, without too many assets.
For organisations, it means that business can’t move forward until the process is complete.
For Josie, she needs to keep in mind that her company assets will be sold, as a way of raising enough money to reimburse creditors. The trustee appointed to oversee the process decides how to distribute the money made from sold assets to all of the creditors you owe.
Josie will have to deal with this blemish on her record for 10 years.
This plan is ideal if Josie would prefer that the company still operates while reorganising debts through a repayment plan.
This bankruptcy option can include a debt repayment schedule of 3- 5 years.
While undergoing this, Josie won’t have to worry about any of her belongings being sold to settle her debts.
This type of filing stays on the credit report for seven years.
How to recover from bankruptcies:
Your credit score might improve. By paying your debts off this means that you will become regarded as creditworthy.
She can find ways of becoming a model consumer. This means paying all of her debts on time and changing her financial behaviour patterns. No reckless spending or accumulating debt unnecessarily.
Josie should also make it a habit to check her credit score more regularly