Which statement best describes what happens when people declare bankruptcy?

Which statement best describes what happens when people declare bankruptcy?

A. Some of their debts can be eliminated, and loan terms are renegotiated with lenders.

B. All of their debts are eliminated, and they are given a fresh start.

C. All of their debts are eliminated, but they have to sell their assets, such as their homes.

D. lghts can he eliminated, but they must agree not to take on more debt.

Answer: A. Some of their debts can be eliminated, and loan terms are renegotiated with lenders.

The best way to sum up the situation which usually occurs when people file for bankruptcy is provided in this statement. Bankruptcy is a legal status which, therefore, aims at protecting people or companies struggling under the pressure of their credit obligations. Nevertheless, it is necessary to know that bankruptcy does not always imply the cancellation of all credits and the loss of property.

The particular debts that one may nullify include credit card bills, overdrafts, medical bills and many more when one declares bankruptcy. Although, student loans, child support or recent tax debts for instance are not dischargeable through bankruptcy cases. Third, the composition of past debts differs from today’s debts; further, secured debts (those with collateral) are modified rather than discharged.

For instance, the individual who has sought Chapter 7 bankruptcy may have his or her credit card debts eliminated, yet still be allowed by law to retain his or her home through exemptions except that the individual has to continue paying the mortgage. In Chapter 13 bankruptcy, the subject creates a plan that has to be approved by the creditors to repay the respective amount in instalments within the time specified.

It should be stressed here though that bankruptcy has a long-term impact on one’s credit rating and one may find it very difficult to secure credit in the future. However, to many, it offers an opportunity to bring back economic independence and begin anew, although not without some conditions and strips.