1. Filing for bankruptcy – difficult decision

For most people, the decision to file for bankruptcy is a difficult one, as they struggle to balance financial and ethical realities. Facing insurmountable debt, one must consider the bankruptcy filing against known or perceived disadvantages such as impact on credit rating, difficulty to secure housing or future credit, as well as the bankruptcy moral implications. The bankruptcy code is offering a reconciliation of two opposing goals: offering the chance of a new start to the honest debtor while equitably distributing insufficient assets among the creditors. The Coronavirus pandemic triggered almost 300,000 bankruptcy filings in June 2020 alone, and over 67% of those filings were Chapter 7. Since March 2020, a total of 946,581 bankruptcies have been filed in US according to the American Bankruptcy Institute published statistics.

  1. Non-bankruptcy alternatives

The debtor may want to consider all non-bankruptcy before making the final decision to file for bankruptcy. Support from an accountant of bookkeeper in situations of positive cash flow on a monthly basis may provide money management support that would allow the debtor to avoid filing for bankruptcy. Credit counseling and debt repaying services or debt negotiation, refinancing, sale of assets or efforts to increase income may also offer alternatives to filing for bankruptcy. One word of caution on income taxes – each time debt is reduced or cancelled by a creditor, that cancellation translates in an equal amount of taxable income. A bankruptcy discharge is an exemption to this general rule and no taxes are due for the discharge of debt in bankruptcy.

  1. Bankruptcy chapters – 7, 9, 11, 12, 13

The Bankruptcy Code, codified at Title 11 of the United States Code. Different chapters govern the filing available to individuals, organizations, family farmers, municipalities, and other local governments.
Continue Reading Chapter 7 – From decision to discharge