Bankruptcy is the legal status of a person, an entity or a corporation to be unable to pay back the debts it owes to creditors.

Although bankruptcy may be complicated and its exact steps vary depending on state, different chapters from various states follow the same process and terms.

Usually it’s a legal status, which means it must be imposed by court order to be meaningful.

In modern business times, deciding on whether to be declared insolvent is a critical decision to make because it has ramifications which can either be positive or negative.

Usually, it affects one’s self image because of the societal perception towards bankruptcy.

It will also affect the person’s future credit and the financial decisions he or she makes.

This is simply because people will always raise questions when an insolvent person makes a huge financial decision.

On the positive side, it can improve one’s life quality considerably during the time of insolvency because the creditors will slow down on demands for the repayment of their debts.

Effects of declaring insolvency may include:

  • The bankrupt person or entity may lose some of the property they own and other luxurious possessions that are not exempt from sale by the bankruptcy trustee as per the earlier agreed terms.
  • It may make it very difficult for one to acquire a mortgage in the future. This is simply because many lenders will find it difficult to offer a long-term loan to someone who has had financial distresses in the past; lenders feel there may be probabilities of insolvent individuals experiencing the same status at a future date making it hard for them to repay the mortgage.
  • Also, declaring insolvency once may make it hard to do it at a future date; some laws in different states may not allow this because questions might arise on the reasons of declaring it. It may mean the individual has some hidden agenda in declaring themselves bankrupt. There are some undertakings that bankruptcy will not exempt you from doing. For example, family obligations such as acrimony and child support.

Some Types of Bankruptcy

  • Liquidation Bankruptcy – in this case, trustees sells off all the non-exempt assets held by the debtor as per the credit terms to repay the debt. This can be applied by individuals, business entities and corporations.
  • The other type of insolvency is where the debtor owns and controls his or her assets but works out a repayment plan and submits it to creditors within a set duration of time. If the debtor fails to submit the repayment plan within the set duration, the creditors apply their own plans.

In conclusion, people need to understand bankruptcy exhaustively before declaring it.

As Robert Reich once said, bankruptcy may allow companies to smoothly reorganize, but not graduates burdened by student loans.



4 thoughts on “Bankruptcy

  1. Chris Adams says:

    Very few people are actually aware about BANKRUPTCY, and such kind of article can help in spreading the awareness, and thus protecting people from such kind of issues.

  2. Julian Holst says:

    The fact that student loans can never be forgiven is troubling. These students are young and probably this is the first major loan they’ve taken out, and they may not realize how much trouble they can be in going forward. Bankruptcy probably is a good choice in certain situations, but not others. Just choose carefully, that’s all I can say.

  3. No Identity Theft says:

    Bankruptcy is long time burden Julian. I had everything taken from me because my business partner impersonated me and stole millions. He fled the country and fronted me the bill. So I had to declare bankruptcy and start all over. It’s almost 10 years later and I am just getting my credit back to where it used to be. It’s important to keep an eye on your identity and be smart with your finances.

  4. No Identity Theft says:

    You are right Chris, not many people know the effects of Bankruptcy. It takes anywhere from 7-10 years to get your credit back. You have to prove to creditors that you are worthy of borrowing money from them without charging you a ridiculous amount in interest. When making large purchases like homes or cars, it makes a HUGE difference (usually in the $1,000’s in extra interest alone).

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