Bankruptcy is something the public hears about often. Most of the time, the news and media focus on big corporations or well-known wealthy individuals. Sometimes it may seem that certain corporations or individuals survive, and maybe even thrive after bankruptcy. It is not true that people or businesses can get richer through bankruptcy. Filing bankruptcy is, in fact, a serious issue.
Determining whether filing bankruptcy is the right move for you or your business is critical before moving forward. Bankruptcy is intended to be an option provided by the government to help people and businesses that are struggling to overcome large debt, but depending on the specific circumstances, bankruptcy is not for everyone.
From the moment you are even considering bankruptcy for yourself or your business, it is strongly suggested to make an appointment with a bankruptcy attorney for advisement of the right steps to take, when to take them, and what to expect.
Why Bankruptcy Exists
Bankruptcy is designed for people and businesses that are in debt to too many creditors and just cannot pay everybody. The underlying policy for bankruptcy is helping the debtor settle some, if not all of their debt in an organized fashion, attempting to ensure that most of the creditors with valid claims get something back.
For example, let’s say a debtor has several creditors. Some of these creditors could be suppliers or vendors, government taxing authorities, contract laborers or service individuals. It is not uncommon to have outstanding debt with multiple entities simply because cash-flow was not good enough to pay off everyone and the debtor prioritized some over others for whatever reason. Without bankruptcy, all creditors would likely be pursuing the debtor with their own resources and remedies, and the debtor would have to deal with each of them separately. This is a daunting task. And in some cases, the most aggressive creditors aren’t the ones that have superior right to be first-in-line to be repaid. Preferential treatment of one creditor over the other can have some long-lasting negative consequences. Instead, bankruptcy court offers an organized manner whereby the debtor and all the creditors must join together to figure things out.
The Potential Upside of Declaring Bankruptcy
While declaring bankruptcy for yourself or your business is not for everyone, there are some reasons why people tend to think it has an upside:
* Automatic stay. In bankruptcy there is something called an automatic stay. When a debtor files bankruptcy, the court will bar creditors from any further collection actions until the court eventually approves them doing so.
* Some people see a big financial mogul in the public eye that has filed bankruptcy and appears to still be doing really well with both money and even high public opinion. Individuals wonder why that person is still rich and having their image on the front of magazine covers. As glorified as some famous people make bankruptcy seem, the main thing to note is that bankruptcy is a cumbersome, expensive and stressful process. A lot of personal and financial information is shared with the court and the parties involved. And, ultimately, the debtor’s creditors still get paid something. So no matter how the media may spin it, no debtor in bankruptcy gets off scot-free.
* Immunity Toward Future Wages. When a person declares bankruptcy, it protects that person’s future wages. In other words, if I am quite talented and have the potential to earn a good wage, but I have current debts I can’t pay, I can file bankruptcy and use my current assets to pay creditors. Once my bankruptcy case is discharged, I can then go on to earn more money without having to promise those future wages to any of...
