What is bankruptcy and how can you avoid it?

• What is bankruptcy? 
• Find out about the different types of bankruptcy and what they mean.
• The best tips to avoid financial problems.

What is bankruptcy? Discover everything about the different types of bankruptcy, its implications and the best way to avoid being one of the more than 380,000 people affected by it each year, according to statistics from the Administrative Office of the US Courts.

In 2022, 387,721 people filed for bankruptcy, fewer than in 2021 at more than 413,000. But what is bankruptcy and what are the different types that affect people the most? Learn more about how avoid this financial situation!

What is bankruptcy?

Bankruptcy is the legal process in which a person or company declares itself financially insolvent and unable to meet its outstanding debt. To complete the process, it is necessary to file a petition before a bankruptcy court. This will include all of the details about your debts as well as income and expenses.

This procedure can result in the suspension of collection actions by creditors but it also has negative consequences, such as the loss of the assets of the person requesting bankruptcy and years of bad credit.

Who can file for bankruptcy?

Who can file for bankruptcy? Bankruptcy is the process by which people and companies declare themselves unable to pay their debts. Among the most common reasons for a person to file for bankruptcy are unemployment, medical emergencies, and poor financial decisions that have significantly depleted family, personal, or corporate income.

For many people, bankruptcy is a last resort when they find themselves unable to come up with another solution. Before filing for bankruptcy it is essential to seek advice from a lawyer or financial expert to determine the benefits and possible long-term consequences.

How many types are there?

There are several different types of bankruptcy. Each of them has different rules and requirements. Among the most common is Chapter 7, better known as liquidation. In this case a trustee is appointed to liquidate the debtor’s assets and distribute the proceeds among creditors. Another option is Chapter 11, which is used mostly by businesses that want to continue operations and set up a court-supervised payment plan.

Chapter 13 is used for people who are in a precarious financial situation but who are still able to pay off a portion of their debts in installments. For this, the court determines a payment plan that usually lasts between three and five years.

How can you avoid bankruptcy?

One of the tips that financial experts give to avoid bankruptcy is to keep a strict control of your debt. It’s important to create a budget that includes a plan for paying off long-term debts.

If your debts get out of hand, taking a second job to catch up is an option. This way you will keep your assets and avoid ruining your credit.