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Bankruptcy Explained

Nov 18, 2007
Bankruptcy is a decision that would make anyone think a hundred times over before making. Aside from the stigma that goes with this option, it also belittles a person's self esteem. Being publicly advertised, bankruptcy demeans an individual's status in the society. A bankrupt person should be ready to face the rejection of the society.

Why then would a person in his right mind choose to go bankrupt? An individual who is unable to pay his debts due to the lack or absence of money or assets is said to be insolvent. A court action will declare this insolvent debtor bankrupt. Being bankrupt frees or releases the insolvent debtor from further obligation; all his remaining assets will be distributed to all his creditors. The court action will ensure that the assets are fairly shared by the creditors.

A bankruptcy order will authorize a trustee to sell your car, your home and all your other assets. The trustee may also garnish a part of your salary to repay the outstanding debts.
There are two ways by which an insolvent debtor can be declared bankrupt.

1. If the debtor declares himself voluntarily.

2. Involuntarily declared by a creditor. Take note that refusing to acknowledge a bankruptcy proceeding will not stop the court from giving the order.

If the debtor is thinking of offering any settlement to the creditor, it should be made before the hearing of the bankruptcy petition. Aside from being difficult, additional expenses will be shouldered by the insolvent debtor.

Bankruptcy is a way by which a stressed debtor can gain peace of mind, a way to be free from the hounding and harassment of creditors. Direct dealings with creditors will be eliminated since a trustee will be tasked to do the job. Eventual court actions that will be filed by other creditors will be prevented.

Bankruptcy option is a way to have a fresh start. But just like any other option, bankruptcy would have negative result. On the down side, being bankrupt will be a part of a person's financial history- a record that will stay for at least 10 years even after the bankruptcy order is annulled.

Being bankrupt will have the implication of being a bad credit risk. This may not be true. Other factors could have lead to the inability of a person to settle his debts. A bankruptcy order will give a distorted credit rating. Future dealings with lenders will be jeopardized. This record will adversely affect future employment. Potential employers will have reservations with regards to the person's financial security. A bankrupt person will be prohibited from acting as company director. Neither will he be allowed to be a member of the local authority. A bankruptcy order will slow down future business dealings since all prospective clients and partners have to be informed of the bankruptcy.

Since bankruptcy orders are published, the debtor would suffer psychologically. Everyone would be aware of his misfortunes. Though some people will be sympathetic to his plight, others would subject him to ridicule. Bankruptcy therefore, should be the last option to be considered by an insolvent debtor.
About the Author
With the increasing financial problems within the UK more people are requiring expertise from companies such as Wilson Field Insolvency and Liquidation Practitioners.
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