Bankrupcy

If you have debt problems, you may be thinking about the possibility of bankruptcy; it isn't permanent, so you may choose it as a way of clearing your debts and making a fresh start. However, it's important to understand what bankruptcy is, you certainly shouldn't think of bankruptcy as being an easy way out because it certainly is not.

What is Bankruptcy?

Bankruptcy is a legally declared inability of an individual or business to pay its creditors, and can be a way of clearing debts that cannot be paid. It is possible for creditors to file a bankruptcy petition against a debtor (involuntary bankruptcy) in an effort to retain a portion of the debt which they are owed. However, in the majority of cases bankruptcy is initiated by the debtor (a voluntary bankruptcy). When an individual or business files for bankruptcy, all excess income and their non-essential assets, i.e. their property and possessions, are used to pay off creditors. At the end of the bankruptcy period, most of the debt is then discharged, allowing the debtors to make a fresh start; having shed the chains of debt, but at a significant cost.

Many people in modern society know people who have filed for or been affected by bankruptcy, it is becoming an increasingly common feature of today's borrow to buy culture. However, not many people completely understand the bankruptcy process, and hence are unable to deduce whether it is a good decision. If you are in a financially unstable position and are considering filing for bankruptcy yourself, or just looking to learn more about it, there are a few crucial points which you should be aware of.

Who is it Right for?

Bankruptcy is a serious matter; you'll have to give up your home and possessions of value. Whilst it gives you a fresh start, it is important to note that you will have to start from with nothing. Bankruptcy destroys your credit rating and as a result you will not be able to get a loan, any line of credit or financing for at least seven years. This is simply because creditors will be able to see that you have previously filed for bankruptcy and will refuse to enter into business with you.

However, you don't have to become bankrupt just because you're in debt. You can try to make arrangements with your creditors instead. For instance you can form an individual voluntary arrangement, where an insolvency practitioner helps you negotiate repayment terms. Many other repayment agreements exist and should be looked into before you make you final decision. To do this, it is often advisable to take the time to talk to a professional; they can take a look at your financial situation and determine the best course of action given your current situation and your debt levels. In some situations they may advise that you file for bankruptcy and will help you by providing you with detailed bankruptcy information.