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5 Debunking Myths and Misconceptions Surrounding Bankruptcy

Our understanding of bankruptcy law can be distorted by the numerous myths and misconceptions that surround this judicial procedure. Although many individuals see bankruptcy as a last resort, the reality is much more nuanced.

According to the US courts, for the year ending December 31, 2022, bankruptcy filings decreased by 6.3 percent, continuing a decline that started when the COVID-19 pandemic broke out. Individual Chapter 13 filings, however, significantly increased.

Also, according to statistics provided by the Administrative Office of the U.S. Courts, there were a total of 387,721 annual bankruptcy filings in 2022, as opposed to 413,616 instances in 2021.

This post will dispel several widespread myths and misconceptions about bankruptcy to reveal the truth about this tricky financial situation. Along the way, we’ll discuss how crucial it is to get expert advice to navigate the procedure successfully.

Dealing with Bankruptcy

A financial issue like bankruptcy can have a big impact on both people and businesses. It happens when a person or business cannot pay their debts and seeks legal protection from their creditors. Although it can be a painful and emotionally taxing process, it’s crucial to go into it knowing exactly what to expect.

First and foremost, declaring bankruptcy is not a cause for shame. Financial difficulties can develop as a result of a variety of situations. When someone files for bankruptcy, a court-appointed trustee assesses their assets and liabilities. They determine the most appropriate way to handle their debts.

It is essential to be aware that bankruptcy laws vary from country to country. The particular steps and outcomes may change depending on where you live. If you are around KY, seek professional advice from bankruptcy attorneys in Louisville who specialise in this area. They can be immensely helpful in navigating the process and understanding the consequences of your unique situation.

Myths and Misconceptions Surrounding Bankruptcy

Myth 1: You will Lose Everything in Bankruptcy.

People’s greatest concern regarding bankruptcy is that they will forfeit their assets. While determining your assets and liabilities is a necessary step in the process, bankruptcy laws provide exemptions that prevent some assets from being liquidated.

Depending on the jurisdiction, these exemptions can apply to different assets, but they usually apply to necessities like your primary residence, basic household items, and personal property. You can learn more about the precise exemptions relevant to your circumstances by speaking with a bankruptcy attorney in Louisville if you are in the area.

Myth 2: Bankruptcy is A Sign of Personal Failure.

One recurrent misconception about bankruptcy is that it signifies a failure on the part of the individual. The truth is that a variety of uncontrollable situations, such as job loss, unexpected medical expenses, or a mountain of debt, can lead to financial difficulties.

The purpose of bankruptcy laws is to give people a second opportunity and a chance to rebuild their financial situation. It is crucial to keep in mind that filing for bankruptcy is a prudent choice rather than an indication of personal failure.

Myth 3: Bankruptcy will Ruin Your Life.

Another prevalent myth is that declaring bankruptcy can harm your life and financial prospects irreparably. While there are consequences to bankruptcy, they are not often long-lasting.

Filing for bankruptcy can negatively influence your credit score, making it more challenging to apply for short-term loans or credit cards. However, as you work towards rebuilding your financial health and demonstrate responsible economic behaviour, the impact of bankruptcy on your credit score can diminish over time.

Additionally, declaring bankruptcy may allow you to restructure your debts and build a more stable financial future.

Myth 4: Declaring Bankruptcy Exempts You from Paying Your Debts.

Some individuals mistakenly believe that bankruptcy prevents them from paying their debts altogether. However, bankruptcy is not a get-out-of-debt-free card. The purpose of bankruptcy is for debtors and creditors to have a just and efficient means of resolving their differences.

Your debts may be discharged or modified under a repayment plan, depending on the kind of bankruptcy you file (Chapter 7 or Chapter 13 in the United States). Bankruptcy allows for the discharge of certain types of unsecured debts, but obligations like child support, alimony, student loans, and taxes generally cannot be discharged.

Myth 5: Anyone Can File for Bankruptcy Whenever They Want.

Contrary to popular assumption, only some are eligible to declare bankruptcy at any time. Whether a person or business is suitable for bankruptcy, protection is determined by the eligibility conditions outlined in bankruptcy legislation. These standards frequently take into account variables, including income, degree of debt, and capacity to pay back creditors.

Additionally, there are other types of bankruptcy, each with its own requirements and processes. You must get advice from a bankruptcy attorney in Louisville to evaluate your eligibility and choose the best bankruptcy option for your particular situation.

Types of Bankruptcy Filings

1. Chapter 7 Bankruptcy:

  • Also known as “liquidation bankruptcy” or “straight bankruptcy.”
  • Chapter 7 bankruptcy is designed to provide individuals with a fresh start by discharging most of their unsecured debts, such as credit card debt or medical bills.
  • In Chapter 7 bankruptcy, a trustee is appointed to evaluate the debtor’s assets and may sell certain non-exempt property to repay creditors.
  • Certain types of property, called exemptions, are protected and not subject to liquidation. These exemptions vary by state and include necessities like the debtor’s primary residence, personal belongings, and essential household items.
  • Chapter 7 bankruptcy typically lasts for a few months, after which the debtor receives a discharge of eligible debts, relieving them of the obligation to repay
    those debts.

2. Chapter 13 Bankruptcy:

  • Also known as “reorganisation bankruptcy” or “wage earner’s plan.”
  • Chapter 13 bankruptcy is intended for those with a steady income source and the desire to pay off their debts gradually while keeping their possessions.
  • In Chapter 13 bankruptcy, the debtor offers a three- to five-year repayment schedule. The plan outlines how they will repay some of their debts using their disposable income.
  • The debtor makes monthly payments to a bankruptcy trustee, who distributes the funds among creditors according to the approved plan.
  • Chapter 13 bankruptcy can be advantageous for individuals who want to protect their assets, catch up on missed mortgage or car loan payments, or address other specific financial challenges while repaying their debts.

Conclusion

Bankruptcy is a complex financial process often shrouded in myths and misconceptions. We can better understand the truth about bankruptcy by debunking these myths. It’s critical to keep in mind that declaring bankruptcy is not a sign of personal failure but rather a way to start again and regain financial security.

The key to completing the process successfully is to get professional advice. Seek a bankruptcy attorney in Louisville if you are in Kentucky. Approach bankruptcy experts to give you a clearer perspective and strive toward a healthier financial future.

Remember that depending on the particular circumstances and jurisdiction, the eligibility requirements, procedures, and results of bankruptcy filings can change. A bankruptcy lawyer should be consulted to help people navigate the process and identify which bankruptcy chapter is best for their particular circumstances.

6 Key Things You Need To Know About Consumer Proposals

If you are struggling with debt, you may be considering a consumer proposal. This is a great option for people who want to avoid bankruptcy. However, there are some key things you need to know about consumer proposals before you make a decision. In this article, you will learn about the six most important things you need to know about consumer proposals!

It Will Save You From Bankruptcy

The main perk of this process is the fact that your wealth is actually well-protected. It’s known that a consumer proposal can help spread out payments, protecting you from bankruptcy. You’ll be able to protect your assets such as your home and car, which is not the case with bankruptcy. This process can help you keep what’s yours while getting a handle on your debt.

If you’re looking into consumer proposals in Canada, know that they can be an excellent way to get out of debt and protect your assets. Keep these key things in mind, and always speak to a professional before making any decisions about your finances.

Reducing Debts

Saving money is always important, and your debts will be largely reduced through a consumer proposal. In fact, you may only have to pay back a percentage of what you owe, and the rest is forgiven. This can provide much-needed relief if you’re struggling to make ends meet each month.

It’s important to note, however, that a consumer proposal does not eliminate all of your debts. You will still be responsible for any secured debts, such as a mortgage or car loan. However, unsecured debts, such as credit card debt, can be forgiven through a consumer proposal.

If you’re considering a consumer proposal to help reduce your debt burden, be sure to talk to a licensed insolvency trustee. They can help you understand the process and whether it’s the right option for you.

A consumer proposal is one way to deal with reducing your overall debt load. If you are struggling each month to make ends meet, this type of arrangement may provide some relief. With a consumer proposal, unsecured debts, such as credit card debt, can be forgiven.

No Extra Fees

When it comes to payments, there are usually lots of extra fees. These are the following:

  • Setup Fees
  • Amendments
  • Monitoring
  • Upfront Payment

With a consumer proposal, you don’t have to worry about any of these fees. You also don’t have to make a large upfront payment. This makes consumer proposals much more affordable than other debt-relief options.

For example, let’s say you have $30,000 in debt. With a consumer proposal, you may only have to pay back $15,000 over a period of 60 months. This means that you would save $15,000 in interest and fees.

It’s Legal

This is a completely legal process governed by the Bankruptcy and Insolvency Act of Canada.  A consumer proposal can only be made by a licensed insolvency trustee.

When you file a consumer proposal, an automatic stay of proceedings comes into effect.  This means that your creditors are legally prevented from taking any collection action against you.

This includes wage garnishments, freezing bank accounts, and legal actions such as lawsuits or seizure of assets.  The stay of proceedings is in place until your consumer proposal is completed or terminated.

It’s Flexible

You also have a lot of flexible options when it comes to consumer proposals. You can decide how much you want to pay each month, and for how long. If your situation changes, and you can’t afford your payments anymore, you can always adjust your proposal.

For example, let’s say you originally proposed to pay $600 per month for 60 months. But after 20 months, you lose your job and can only afford $300 per month. You can go back to the trustee and change your proposal to reflect your new budget.

Or, let’s say things are going great, and you want to get out of your consumer proposal early. You can do that too! If you have a lump sum of money (maybe from a tax refund or an inheritance), you can use it to pay off your consumer proposal in full.

You Pay What You Can Afford

It’s important that you’re able to protect your assets and with consumer proposals, you’ll be paying only what you can afford. This is determined by your monthly income and expenses. You’ll work with a consumer proposal administrator to develop a budget and propose an affordable payment plan to your creditors.

If you’re unable to make the payments outlined in your consumer proposal, the court may declare the proposal void and order that your estate is liquidated.

Consumer proposals are essential in protecting you from bankruptcy, and they will reduce all your debts. You won’t have any extra fees in this completely legal move, which allows you a lot of flexibility. Finally, you will only be paying what you can afford, giving you a lot of leverage over time!

The New Bankruptcy Regime In Oman

Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debtor.

Prior to the recent passing of the Omani Royal Decree No 53/2019, Oman law contained limited legislation governing the area of bankruptcy.

The Commercial Law issued by the Royal Decree No 55/1990 and the Commercial Companies Law issued by the Royal Decree No 4/1974 and their related amendments continued to provide the framework for the bankruptcy of traders and liquidation of insolvent companies, until the passing of this new Bankruptcy Law.

This new law, which will come into effect from July 1st 2020, sees the formation of new progressive rules and regulations. These provisions will apply to traders with the aim of improving the methods and measures that are to be taken following a bankruptcy.

The key three provisions that have been introduced include the restructuring procedure, preventive composition, and bankruptcy.

1. Restructuring

A significant new provision introduced by the Bankruptcy Law includes the concept of restructuring. This is a brand new mechanism proposed for the traders in financial difficulties. Restructuring involves proceedings that may assist the trader debtor to overcome a financial and administrative disorder, by way of settling the debtor’s debts via a restructuring plan.

This is overseen by a restructuring committee, which is formed of experts that are registered on the Roll and are defined to include a sufficient number of persons, offices, and companies specialised in the restructuring field. The experts will be sought by the Competent Department at the Ministry of Commerce & Industry and required to examine petitions for restructuring and the handling of the petitioner’s assets.

This method is aimed to help prevent traders from going into liquidation, by way of creating a settlement of the traders’ debts with its creditors. The procedure enforces strict and fast deadlines and requirements for the petition to be accepted and can only be submitted where it is found that the debtor has not committed any act of fraud and has practiced the business continuously during the two years before the filing of the petition.

2. Preventive Composition

The second method includes Preventive Composition, whereby the trade debtor may apply for in situations when there is a disruption in the debtor’s financial situation, which is likely to lead into an interruption of the payment of the debtor’s debts. This method can be sought with the aim to achieve a settlement with creditors to avoid bankruptcy. Unlike the method of bankruptcy, creditors are unable to apply for a petition of Preventive Composition.

During the time of Preventive Composition, the trader can continue to administer the property and undertake acts in the everyday course of business. A composition trustee will be appointed by the court, who must help oversee the Preventive Composition process, such as the gathering of creditors and the publishing of the summary.

Where a Preventive Composition application succeeds, the Judge will require a majority vote of consent by the creditors, in which their approval must accumulate to two-third of the verified debts. For a secured creditor, they may not vote unless they give up their rights as secured creditors. In situations where the company has issued bonds or sukuks and the outstanding amount of bonds exceeds more than one-third of the total outstanding debts, the composition will require further approval from the general assembly of the holders of the bonds or sukuks.

3. Bankruptcy

The third method includes filing for bankruptcy. Any trader who may have stopped payment of his commercial debts due to the interruption of his commercial business may submit a petition in bankruptcy. For a petition to be submitted, it must be made within fifteen days from the date of cessation of payments and must include the reasons for the cessation and the appropriate documents, including statements of property and expenses. The Court may also prompt the decision of bankruptcy for a trader. Where a submission for bankruptcy is made, the trader company requires the approval of the majority of its shareholders.

Bankruptcy claims are examined by the Court, who will in turn, take precautionary measures against assets of the trader debtors to preserve the assets of the trader. The Court will also appoint a liquidator, who will be the official receiver to oversee the insolvency proceedings. They will be in control of overseeing the management of assets of the debtor trader.

The liquidator will also be in charge of publishing a summary of settlement in the Commercial Register and the invitation of creditors. They must ensure that the bankrupt person cannot manage or dispose of any property, pay any debts or retrieve any amounts that are owed to him.

4. Penalties

With the new Law, there is now enforcement of penalties for rejected petitions by the Court. In circumstances where the Court believes the trader has deliberately claimed bankruptcy, the petitioner can be found sentenced to a financial penalty.

The Law also enforces an imprisonment sentence, where they are found acting in bad faith, through methods of concealment, inducement or neglects to include a creditor.

Conclusion

The new Bankruptcy Law continues to promote investment in Oman, by helping to ensure transparency to both foreign and local investors. The New law will impact the working of companies by providing a base to seek a remedy in circumstances of bankruptcy, helping to provide more suitable conditions for companies to grow.

The new Law also enables debtors the opportunity to rehabilitate by being given the chance to pay all due amounts and expenses owed to creditors.