At some point in their lives, individuals may find themselves in a grave financial predicament. Their debts may outweigh their resources inordinately. In such cases, they might find it beneficial to file for insolvency, as the jurisdictions could free them from certain obligations alongside suggesting a convenient reimbursement schedule.

Not withstanding, it is not advisable for all scenarios, for both pros and cons accompany a bankruptcy declaration. Having your debts relieved is a major undertaking that should not be taken lightly; take your time to ponder over the repercussions that may transpire. Alternatives must be contemplated as well, alongside judging if you would be able to handle the process of filing for insolvency.

Read on to learn about the critical aspects of bankruptcy:

The reasons why people file for insolvency

As mentioned, the common reasons for doing so include getting rid of debt repayment obligations and more favorable reimbursement programs. However, many people do so simply to terminate their commitment to trade payables. This would free them from having to deal with phone calls, letters or other strategies from creditor bodies trying to extract their dues.

This works because filing for insolvency triggers an ‘automatic stay’ regarding your trade payables taking measures against you as an infraction.

The Right Time to Declare Insolvency

As a general rule, this is the least desirable option for entities obligated to repay inordinate debts. However, if you find yourself in a comparable situation, it may be advisable to follow this option.

Ponder over these points to assess your present financial standing and determine if insolvency would be the most congruous choice for you:

• My asset-liability ratio

Do your debts outweigh your resources substantially, to the point where repaying them would devour your earnings? If the answer is yes, you could find it tremendously advantageous to file for insolvency.

• My current plan for reimbursement

 If the plan revolves around credit card usage, you are merely dragging yourself further down the rabbit hole. It is highly recommended to file for insolvency to end the loop.

• Arrange deals with trade receivables

Consulting your trade payables and soliciting for a convenient repayment program ought to be your priority in a financial predicament. Should they decline your appeal and you still have difficulties, it may be worthwhile filing for insolvency.

• When will I be done with repaying my creditors?

You could seek bankruptcy insurance if you discover you would have a rough time coping with your obligations over a span of five years.

The Procedure to Follow Prior to Filing for Insolvency

It is essential that you apprise yourself of all accompanying pros and cons that you would face post-bankruptcy filing. Try starting with knowing which category of insolvency you fall under.

In Chapter 7 insolvency, non-exempt assets may be sold to settle your debts, and outstanding balances will be written off. In contrast to this, another class- Chapter 13 insolvency- allows debtors more time and convenient reimbursement programs to balance their dues.

A key aspect to consider is, your insolvency will blemish your financial history, making it challenging for you to procure loans for the next five years to a decade.

If you are worried about insolvency in the future, be sure to consult an accomplished bankruptcy solicitor to have your situation evaluated and go over the options available to you.