Bankruptcy is a term used when an individual or organisation cannot afford to pay their creditors legally. In the majority of cases, bankruptcy is initiated by the individual or organisation even though a state of bankruptcy can be requested by their creditors in an attempt to recoup some of the money owed.
The two main purposes of bankruptcy are :
1) To repay creditors some of what they are owed to the extent that the debtor can afford after their essential living costs are factored in.
2) To give the debtor a fresh start to live and free from the burden of debt.
Bankruptcy can be a great blessing for the debtor as it allows the debtor to resolve their debts. In addition, declaring bankruptcy allows debtors to be discharged from most of their financial obligation after their nonexempt assets are distributed, even if their debts haven’t been paid in full. During bankruptcy the creditor(s) will not be permitted to continue contacting, garnish wages nor file any lawsuits to the debtor.
Bankruptcy is often viewed as a wake up call and well it should because that means they have hit financial rock bottom and gives them a chance to start again. There are over 100,000 people going bankrupt in the UK each year for a variety of different reasons.
Back in the old days, if you were unable to repay your debts then you were sent to prison. You could had been sent to prisons such as the Fleet or the Marshalsea which contained a mixture of criminals. Fortunately the Debtors Act of 1869 was setup and abolished imprisonment for debt. Now going bankrupt isnt always a bad way to relieve you from debt – though this very much depends on the circumstances of the individual or orgnanisation.
Before jumping feet first into bankruptcy it is always worthwhile speaking to a professional debt advisor. You may find other solutions such as debt management or an IVA may be more suited to your needs and can leave you with more cash in your pocket each month. This is what the bankruptcy clinic is about – assessing your options before assisting you.