What is bankruptcy and how to go bankrupt?

Bankruptcy is the process where a person legally declares himself or his business unable to pay outstanding debts. This process is designed to help consumers and businesses eliminate their debts or repay them under the protection of the bankruptcy court. There are a few different ways in which the person or a company cans declare bankruptcy. Bankruptcies can generally be described as "liquidations" or "reorganizations."

Companies or businesses can also declare bankruptcy. Businesses going bankrupt mean that they will either close down their operations or they can continue to operate but they will have reduced payments to be given to the creditors.

Why do people go bankrupt?

The top reasons why people go bankrupt are:
1. Lawsuits/Garnishments
2. Auto Repossessions
3. Unpaid Medical Bills
4. High Interest Loans
5. Driver's License Suspensions
6. Foreclosures
7. Overzealous Lending
8. Consumer Overspending
9. Bad financial mistakes
10. Bad luck like layoff!!


How to go bankrupt?

Here are the steps on how to go bankrupt:

Step 1 - First of all, you need to understand the meaning of bankruptcy. Declaring bankruptcy doesn’t mean that all your debts and financial responsibilities go away. Sure, you will be forgiven some debts, but you will still have to pay for child support, alimony, student loans etc.

Step 2 - Then you should find out whether you are eligible to file bankruptcy. The following are the eligibility criteria for anyone to file bankruptcy:

• Person must be residing in United States
• The person needs to pass a 'Means Test' to file Chapter 7
• For chapter 7, the person needs to take credit counseling courses
• You should not have any bankruptcy filed within last six months.
• For Chapter 7, you can not have been granted a discharge under Chapter 7 or completed a Chapter 13 payback plan within the last 6 years
• For Chapter 13, you must have regular income. You must have less than $250K in unsecured debt like your credit card debt etc and less than $750K in secured debt like your home mortgage.

Step 3 - Choose the type of bankruptcy you want to file for. There are basically three types. Chapter 7 eliminates most of your debt but then you can have a fancy life after bankruptcy. Chapter 13 allows you to realign your money for better financial future. And Chapter 11 is for companies who want to file bankruptcy.

Step 4 - You need to consult your local court to find when you can get credit counseling sessions. You need to complete the course within 6 months before filing for bankruptcy.

Step 5 - Then you need to file your case in the local court. You can taker help from a counsel since this is a complicated process. You can check if you can qualify to get free aid of a professional to get this done. You will need to provide copies of your financial details, debts, tax returns etc.

Step 6 - Present in the court to face your creditors. You will be asked questions and you need to prepare to answer them and detail how you got yourself into this situation.

Step 7 - You will need to liquidate your assets which are not making you any money. This is a part of bankruptcy settlement.

Once all these are done, you can start over once again and try not to mess up your financials once again. How to go bankrupt is an easy part. The harder part is to prevent yourself in getting into the situation and the hardest one is to bring your life back to normal.

Check out other related hubs about bankruptcy which might be useful.

• How to go bankrupt?
• Loans after bankruptcy.
• How to find a suitable bankruptcy alternative?
• Medical bankruptcy
• How to get a credit card after bankruptcy?
• Do it yourself bankruptcy
• Buying a car after bankruptcy
• Life after bankruptcy discharge