Personal Finance presentation, declaring personal bankruptcy prepared to get financially fit by practicing personal finance, declaring personal bankruptcy. Obviously, declaring personal bankruptcy is one of the last options we would want to be considering when dealing with debt issues that there are a lot of different components. And it can get quite complex when we’re dealing with bankruptcy issues.
00:23
So you would want to be getting advice. If this is an option you’re thinking about pursuing, we’re just going to start off and give some general points here to start you off in the research if it is an area that you would be considering. So filing for bankruptcy is a way to get out from under a huge debt load. So clearly, if you’re in a situation where you have a lot of debt, you don’t think the normal kind of steps that can be taken will be enough to release or take get out from under the debt load, the debt load has become unsustainable, then bankruptcy could be an option at that point in time to consider however, it of course has negative consequences that can last for a lot for years.
01:02
So for example, obviously, it can be complex to go through the bankruptcy process, you may have to be have some costs, which relation to the bankruptcy process, it’s going to take some time to go through the bankruptcy process that can take some time as well. And of course, it will have future impacts on your ability possibly to get credit and other kind of decisions, financial decisions business decisions in the future. The two common types of personal bankruptcy would be chapter seven and chapter 13.
01:31
So chapter seven is usually the one that first comes to mind. And then we have chapter 13 are two options that you can basically look into chapter 11 is another one that we won’t be focusing in on here, typically a more business related bankruptcy section. So before filing for bankruptcy, it’s best contacting your creditors to see if they’re willing to negotiate. So in other words, in the bankruptcy options, basically the creditors on there and you want to think about well, what is this going to look like with regards to the creditors? If you’re looking at your financial situation, you’re saying, hey, look, my debt is unsustainable, I don’t think I’m going to be able to pay this off.
02:08
That means if you’re on the creditor side of things, they’re if they look at your financial situation, and determined the same thing, then they may be benefiting on their end to say, okay, we probably on our end, if we’re the bank, and we gave you a loan, and and you’re having problems, you’re not going to be able to repay the loan, possibly that is, in part kind of our problem, because we set up the loan in the beginning, what we would like to do then, is to negotiate to the point where we can get paid whatever we can get paid. In other words, from the bank’s perspective, if they were to see that you’re not able to pay off the debts, it’s in their interest to try to get an agreement to pay off as much of the debt as possible, and do so while paying third parties as little as possible,
02:54
which means lawyers and whatnot, as you go through the bankruptcy process, because that could be costly. Could the bankruptcy process itself could take away some of the money that if you were to restructure directly with the creditors could go more directly to the creditor? So your first option would say, if I can avoid bankruptcy and go to the creditors and say, hey, look, here’s my financial situation. With you know, I don’t obviously I don’t think this is sustainable, I don’t think I’m going to pay this debt, that means you’re not going to get your money unless we can work something out in order to move forward from this point.
03:26
And that could relieve some of the costs that would be involved by going through the formal bankruptcy process. So many lenders have programs for people who are having trouble paying their mortgage, chapter seven bankruptcy. So chapter seven, allows liquidation of assets to pay creditors. So basically, that’s an idea or the concept of you look at your balance sheet and your income statement, right. If you’re in bankruptcy, that means that your income statement, your income generally is not sufficient enough to pay off the debt and anytime soon, it doesn’t look like it’s sustainable.
03:58
So a liquidation process would be saying Okay, now we’re going to liquidate possibly the balance sheet things on the balance sheet. Now, the big downside of that is if you have a lot of assets on the balance sheet that you don’t want to liquidate, right and the big one is usually someone’s home. So the home is is something that may then they may say, Well, if you’re really going bankrupt here and you can’t pay the creditors and you made a promise to the creditors, then you should be going through the liquidation of your assets to make when we say liquidate, it’s making your assets into something that you can spend.
04:29
So you’re taking the big assets, and then you’re liquidating them down to spendable things like cash so that you can then pay off the creditors. So if you’re in a situation for example, where you have, you have don’t have the sufficient cash flow to pay off your creditors and it doesn’t look like it’s sustainable at all. But you have a whole lot of assets that are fairly expensive types of assets a nice you know nice collars boat or something home. That is that is not a house that is owned, then then You know, you can see from a creditor standpoint, of course, they’re going to be saying,
05:03
Well, you know, you could pay us, you could sell the boat, right, you could sell the home or whatnot. And that’s, and that’s kind of the process that would typically possibly go through with the liquidation process. And on the other hand, if you’re in a situation where you’re saying, I don’t have anything I don’t have, I don’t have, you know, I’ve already liquidated my home, most of my big assets and whatnot, then the liquidation process might not be as costly to you, because you’re not liquidating any big assets into cash, it really depends what kind of your balance sheet looks like, on that situation.
05:33
So unsecured property debt is paid first. So So then we won’t go into this in a lot of detail. But from the liquidation process, obviously, what they’re going to try to do is liquidate your assets to cash. So if you look at your balance sheet, you got the asset side in general, they would like to liquidate it so that you have then cash as your assets. And then they need to pay off that cash to the people that you owe in sequence of who should get paid first, second, third, and so on who has the first priority to what is there and who’s going to be left holding the bag at the end when you run out of assets, and you can no longer pay off the creditors, right.
06:11
So they’re going to liquidate what you got, they’re going to pay off the creditors in accordance with the law as to who should be paid off for a second and third, and then whoever’s left off with not being paid paid, then you go from that point. So right so the unsecured property debt is paid first. And then after which comes secure debt, and then non property unsecured debt. Filing chapter seven typically involves completing forms and a review of assets by the trustee. So the trustee, typically you’re thinking of a third party here that isn’t and isn’t, you know, isn’t paid by the bank or right, it’s supposed to be independent kind of third party that can be impartial in the decisions that are basically going through the liquidation process as you do the liquidation process.
06:57
So they can basically hold it separate interest and then give it out in accordance with the bankruptcy rules. So then we have chapter 13 bankruptcy as part of the of the financial reorganization of chapter 13, a debtor must submit, as well as follow through with a plan to repay outstanding creditors within three to five years. So this one is kind of like a plan, right? This is more similar in essence, to if you were able to do and negotiate with a creditor themselves, right? If you went to the creditors themselves and said, hey, let’s go let’s get down to a plan or something like that. If you go to chapter 13, then you’re filing basically for bankruptcy.
07:35
And generally, you could think that you might have a third party in essence basically helping you to put together the plan for the chapter 13. So chapter 13 bankruptcy may also be called a wage earners plan, individuals pay and agreed on monthly amount to an appointed trustee who should be impartial. So once again, you’ve got that impartial third party, in essence, that should be handling the interchange through the process between the chapter 13 bankruptcy and you and the creditors. So chapter 13 versus chapter seven. Chapter seven is the most common form of bankruptcy because it allows individuals to erase their existing debt and start afresh which is nice, because that’s kind of the point you’re trying to erase everything that’s on the board and start over.
08:19
Now note, there could be some things that you know, don’t go away in bankruptcy, some types of debt and so on and so forth. So you can get you want to get in make sure you get into the details on your personal situation, to see what kind of debt would be released and what may not. However, chapter seven filers are often required to surrender their home. So that’s kind of the point. So right if you’re doing a chapter seven, you can say, okay, we’re taking your balance sheet, in essence, you know, we’re liquidating it and then we’re going to pay off whatever we can pay off and try to wipe the slate clean as much as possible.
08:51
But that means you’re liquidating your your assets. And again, if you have a big balance sheet have a lot of stuff that you don’t want to liquidate, even though you don’t have the cash flow in order to pay the debts, then that’s when people balk at the you know, they they hesitate on the chapter on this chapter seven even though you got that kind of restart process there and then once once a chapter 13 bankruptcy is initiated, any home foreclosure proceedings may be ceased.
09:18
So the chapter 13 again might be an option then in that situation where you where you could go through more of a negotiation process instead of instead of the complete liquidation type of process. So again, this is just an overview you get if you’re considering these options, you want to take a look at them in a lot more detail and get quite complex in terms of your options for the bankruptcy options and look for advice related to it.