With the current state of the economy and with the staggering number of business closures due to COVID-19, it doesn’t take much to explain why there’s a good chance that some business owners might need the information contained within this article. There is a lot of misunderstanding when it comes to filing for bankruptcy and it’s important to enlighten our readers on what exactly it means. Before we get to the main point of discussion, it’s important to first dispel some misconceptions about bankruptcy.

What Exactly Is Bankruptcy?

Contrary to popular belief, bankruptcy is not as bad as it sounds. Rather, it is a legal proceeding that is entered into by a person or a business that is unable to repay their debts. The premise behind a bankruptcy is not about foreclosing a business, but rather, it is a measure that grants a petitioner freedom from debts.

How Does the Process of Bankruptcy Work?

The process starts when a petition is filed. It’s during this time when all of the petitioner’s assets are measured and evaluated. The assets may then be used to pay off a portion of the outstanding debt. It’s also important to point out that there are many types of bankruptcy claims and depending on which claim you file, they wipe out different types of debt. For example: filing chapter 7 in NY eliminates debts from your:

  • Credit card
  • Medical Bills
  • Personal Loans
  • Rent
  • Utility Bills
  • Business Debts

It should also be noted that some debts cannot be erased. Child support and recent tax debts cannot be erased.

When Should You File for Bankruptcy?

While most people are going to feel that they have a moral obligation to pay what they owe, this only applies if they are able to do so. That problem lies in how most people typically wait until it’s too late before they file for bankruptcy. The reason why we are given a measure that frees us from debt is so we can avoid debts that we really can’t pay off.

When a debt is unpayable, or when paying it would leave a borrower in major financial trouble, that is the time when you need to file for bankruptcy. Even when there are a plethora of debt relief options, filing for bankruptcy is going to be your best choice when your consumer debt can be erased.

Why You Should File for Bankruptcy?

When you’re unable to pay your debt, this has an adverse and lasting effect on your credit score. Not only this, but you’d end up spending money that you could have used to support yourself in retirement. The whole premise of filing for bankruptcy is to keep yourself from a deeper hole in your finances that you have to.

Filing for bankruptcy does not necessarily mean it’s the end of the world for you. Rather, it is a measure that helps people or businesses to get themselves out of an obligation that is likely to drain them completely of their finances.