Did you know that over 500,000 people in the United States declared insolvency in the year 2020? When it comes to insolvency claims and insolvency litigation, there is a lot that you need to know so that you’re prepared if insolvency litigation solicitors come calling.
But what is insolvency? And how should you go about handling it if you do find yourself in the middle of misfeasance claims? The good news is that you’ve come to the right place to learn more about insolvency and the most important things that you need to know about it.
Continue reading to learn about the 10 most important things to know about insolvency.
What Is Insolvency?
Insolvency is a situation in which a company or an individual finds that they can’t pay any of the debts that they owe when those debts come due. Sometimes insolvency goes to litigation, though there are times where the creditors will work with the business or individual to figure out other ways of paying the debts back.
The difference between bankruptcy and insolvency is that insolvency is a state of financial distress. Bankruptcy on the other hand is a legal proceeding that is directly tied to insolvency. Here is a closer look at the things you need to know about insolvency.
1. Know Your Options
When it comes to insolvency, there are a couple of different options that you can take. The first is called Chapter 7 bankruptcy. It is when all of your assets get liquidated. It is a great way to get rid of unsecured debts that you have to your name. This is especially true if your debts are credit card debts or unpaid medical bills.
Chapter 7 bankruptcy is the best option to take if you have little to no assets to your name. You do need to meet certain income requirements in order to be eligible for Chapter 7 bankruptcy.
The other option is Chapter 13 bankruptcy. It is a good fit for people with regular income and that have enough money to pay off their debts through a repayment plan. This form of insolvency litigation allows you to keep all of your assets and property but you’ll need to pay your creditors for the value of things like cars or boats.
2. Consider Other Insolvency Options
Rather than filing for bankruptcy, look at other insolvency options. Credit counseling is a great approach to take with helping with insolvency and is a required step before you file for bankruptcy.
There are also a number of acts like the CARES Act that help people with insolvency keep things afloat with financial relief so that they don’t lose their assets.
3. Don’t Spend Lots of Money
Similar to when you’re applying for a mortgage for a home, don’t do anything that will affect your credit when you’re in a state of insolvency. The best approach is to avoid spending lots of money for 70 to 90 days before you file for bankruptcy. For more help, visit https://www.ndandp.co.uk/director-disqualification/.
If you file for bankruptcy and proceed to spend money in that 70 to 90-day timeframe your creditors will potentially bring charges of bankruptcy fraud.
4. Bankruptcy Doesn’t Get Rid of All Debts
It is important to remember that filing for bankruptcy won’t rid you of all debts. If you’re behind on paying taxes or child support payments you won’t be rid of those debts. This is due to public policy regulations that require you to make those payments.
Student loans are also difficult debts to navigate and handle. It is possible, but you need to prove that you’ve been through undue hardship.
5. You’ll Keep Some Property
If you took secured loans, you’ll lose property based in large part on what is exempt and what isn’t. An example of something that is exempt is the mortgage on your home. It is important to keep in mind that any non-exempt property will be seized and sold by your creditors as a way to pay back your debts.
6. Insolvency Litigation Takes Time
Declaring bankruptcy isn’t a quick and easy solution to your insolvency issues. Filing for Chapter 7 bankruptcy takes up to six months to complete, so keep that in mind.
Chapter 13 bankruptcy takes even longer to process. This is because of the process that it follows. First, the plan needs to be approved by a bankruptcy court which takes a good amount of time. It also takes longer because you’re able to keep some property and you’ll need to continue making payments on it.
7. Bankruptcy Is Expensive
Due to the complex nature of bankruptcy, it is always a good idea to consider hiring a bankruptcy attorney for help. The drawback of this is that bankruptcy is ironically expensive. If you choose not to hire a bankruptcy attorney you run the risk of your case getting dismissed.
You also need to be aware of the filing fees that you’re expected to pay if you decide to take the route off bankruptcy.
8. Be Honest About Income and Debt
The process of filing for bankruptcy requires total honesty about the things you owe and the things you own. If you’re not honest, you’ll be charged with perjury and face large fines and jail time.
It is also a mistake to try to hide property. Doing so results in serious charges due to a failure to disclose all of your assets. This will also lead to your case getting dismissed.
9. Your Finances Will Go Public
One thing to be aware of with filing for bankruptcy is that the whole world will have access to your financial situation. If you don’t want people seeing all of that information then you should explore other insolvency solutions besides bankruptcy.
You’ll also need to attend a public meeting with your creditors where the trustees will ask questions about your financial situation.
10. It Affects Your Credit
Filing for bankruptcy carries with it the fact that your credit will be damaged for years to come. Bankruptcy stays on your personal credit report for up to 10 years. This means you’ll have a difficult time getting a loan for a car or a home in the future.
You also need to know that there is a limit to the number of times you’re allowed to file for bankruptcy.
Now You Know About Insolvency
When it comes to finances, it is important to be aware of insolvency and your different options if you choose to file for bankruptcy. There are different approaches that you can take that will allow you to keep your property. No option will absolve you from paying your taxes or child support payments, and it is important to note that it affects your credit for years.
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