Despite a highly developed economy, bankruptcy in the United States is common. The presidential administration annually spends a trillion dollars on all kinds of social benefits. Almost half of these funds are spent on paying off debts.
Every resident has a loan, and, after losing a job, he/she can become a potential bankrupt. Over years, the loan has been growing due to duties, penalties, and fines. As a result, a person does not repay the loan, and, therefore, the amount of debt can grow to several hundred thousand dollars.
US bankruptcy procedure
The US criminal law and U.S. Bankruptcy Code govern bankruptcy in the United States. Both documents state that the debtor is responsible for defrauding the creditor; therefore, he/she may lose all property.
In the United States, a bankrupt is an individual who is recognized as such by a special court that deals with such cases. The fact of bankruptcy can be recognized and established in case of legal insolvency. After that, the borrower’s property is sold, and the debts are repaid with the proceeds.
US bankruptcy options
US law has introduced six types of bankruptcy. Most often, only three of them are applied. According to the U.S. Bankruptcy Code, these are:
- Title 7. Provides that the debtor is deprived of all rights to their property, and they will no longer be able to use it. Everything that a bankrupt person has must be sold. All money from the sale of their property is used to pay off debts to the creditor.
- Title 11. This chapter deals with the debt reorganization procedure for persons who are engaged in a family business, etc. According to the requirements of this title, the debtor is not deprived of property. They can continue to work or be engaged in any other activities. However, they must submit a court-approved debt reorganization plan to the creditor.
- Title 13. A bankrupt is not deprived of the right to use the property. Therefore, they can sell it, rent it, donate it, etc. This option is applied to individuals with a stable income only if the amount of funds received is not enough to pay off all debt obligations.
After a person is declared bankrupt, they can continue to take loans. However, money received after bankruptcy has priority in the order of repayment, in contrast to loans taken before bankruptcy.
Bankruptcy in America has two sides. One of the advantages of bankruptcy is the opportunity to start a new life from scratch without any obligations and debt. Unfortunately, there is also a negative side because a record of recognition of bankruptcy is stored for 10 years in the credit history. Because of this, such a person will not be able to receive a new loan from US banks in the future. Such a situation can cause serious difficulties in the future because you may not be able to pay for rent, treatment, insurance, education, or any other important needs due to a mistake in the past.