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Bankruptcy Basics - How does Bankruptcy Work?

Updated on July 1, 2011

Declaring Bankruptcy as a last resort

Bankruptcy is an unpleasant thought for most all people, and it certainly isn't the first choice to go with when dealing with debt and financial hardship. Truth be told, it is often a last resort, or way out for some folks that come into very hard financial times for whatever the reasons. It is good to know a little bit about it just in case you ever need to know for yourself, a family member or a friend that is struggling. There is nothing worse than the deep discouragement that can come in life for people when they see no way out of financial problems that they feel are consuming.

Bankruptcy is a legal way to to remedy or put off financial disaster. I would ask around for advice first, before resorting to bankruptcy. Some great help can come from places like the National Foundation for Consumer Credit, and it is a non profit organization that wants to help people with finances. It is available in all 50 United States, and helps to arrange repayment plans when you feel like you don't know what else to do.

If you do get to the point of bankruptcy, there are some things to consider.

Nations, not just individuals, can go bankrupt.
Nations, not just individuals, can go bankrupt.

A General 3 step process for Bankruptcy

There are three main things to start with, when you decide to go through the process of declaring bankruptcy. First, file a petition in a federal or state court. You are letting them know you are not solvent, or insolvent. You have no assets to pay for all your debts, basically.

Secondly, You will be working out a plan with your creditors and the court to deal with the financial crisis you are in.

Third, you will be discharging or settling your debts and usually it is for less than half of the amount you owe. This allows for your creditors to get at least some of the money that should be coming to them.

The Cons to Considering Bankruptcy:

Losing a lot of your privacy in regards to financial records

Major harm to your credit history, bankruptcies look bad

Not all debts are taken care of, often like student loans, and child support, etc.

Personal involvement with the court system

Loss of your assets

Never give up hope.
Never give up hope. | Source

The "Pros" to Bankruptcy if you decide to go there

The pros will need to outweigh the above cons for you and your family, should you move forward with the bankruptcy. Here are the "pros" involved.

Complete Financial ruin is avoided.

Most of your debts are resolved.

You would have legal protection from creditors.

It can prevent the loss of your home (which is a huge plus to many people/families).

You can start fresh financially, even though it is on your record for years to come. A fresh start can bring fresh hope into life, and the bad credit isn't forever.

Protects you from the IRS possibly seizing property for back taxes.

So consider the above pros and cons, before moving forward with a possible bankruptcy. It is always best to try to pay back the people and companies that you owe money to. If you want some help or just advice, consider calling the National Foundation for Consumer Credit at 1-800-388-2227. They will let you know who to contact for further assistance if need be. Don't give up, whatever you do. Things can get better even if you take small steps to get there, and that is worth the effort!


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    • oceansnsunsets profile image

      Paula 6 years ago from The Midwest, USA

      Thank you!

    • PhoenixV profile image

      PhoenixV 6 years ago from USA

      Great information voted up!