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Could You Have To Pay Back The Personal Debt Anyway?
By far the most widely held misunderstanding about bankruptcy is that it is the debtor's version of the "get out of jail for free" card in Monopoly. While many people know that bankruptcy affects your credit for 7 to 10 years, very few folks know that it is possible that you'll need to pay back the debt anyway, even when you file a Chapter 7.
The formal definition of bankruptcy is "a proceeding in federal court in which an insolvent debtor's assets are liquidated and the debtor is relieved of further liability." On the other hand, the commonplace definition of bankruptcy is most likely "the procedure of totally wiping out your debts for free."
Within the majority of situations, the latter definition may be appropriate, but in some scenarios, it's likely that even with bankruptcy, you'll still have to pay back no less than a portion of the debt.
So when would it be likely that you'll need to pay back your debts? Here are the most popular scenarios when you'll get all the negatives of declaring bankruptcy (severe credit impact for 7 to 10 years), but none of the benefits (you will still need to pay back at least part of the debt):
1) You make a lot more than the average individual in your state. If this is the case, then it's likely that you'll be forced into a Chapter 13 bankruptcy plan. In a Chapter 13 bankruptcy, the court orders that you pay all of your disposable income to a court employed trustee, who in turn disburses repayments to your creditors.
2) You've got assets. When you own a home or automobile, then it's possible that the bankruptcy court will force you to sell them to generate sufficient cash to repay your creditors. Odds are, if have a pretty good chunk of change invested (unless it is in a tax-exempt account such as an IRA) then you'll also be forced to liquidate it.
3) The debt collectors can prove that you were fraudulent and never had any intention of paying them back.
For the majority of us it usually means that unless.
A) you do not have a great deal of equity in any of your property.
B) you do not have any assets like stocks, real estate, etc..
C) you don't care about having to sell anything mentioned in points A and B.
D) you don't care about having to surrender your disposable items for five years in a Chapter 13, then bankruptcy may not be your greatest option.
Your greatest option (if you own a company) may be to raise capital by expanding your company through an initial public offering. Any company going public will certainly overcome most economic issues it faces with the help of a knowledgeable business consultant.
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