Before discussing bankruptcy, it is essential to know the terminologies used therein. Debt is an obligation or liability to pay or render something to someone else. The person or the enterprise who borrows the money, is called as the debtor and the person, bank or enterprise who lent the money, goods or services is called the creditor. In other words, creditors are the lenders and debtors are the borrowers
Based upon the above-definitions, bankruptcy could be defined as the process a debtor undergoes when a debtor is unable to pay the creditor for the amounts borrowed and is in need of managing his/her debts. A person is bankrupt when he/she is unable to discharge the debts when they are due, and he/she is in a state of insolvency. It is the situation when the liabilities exceed the assets.
As a result of the economy a majority of the people and companies in the world today are facing financial crisis. They have become the targets and scapegoats of the sudden economic downfall. However, declaring bankruptcy might restrict the debtor in the future. If the debtor refuses to file bankruptcy but refuses to pay his/her debts, then the creditor having no other option declares bankruptcy by initiating legal proceedings against the debtor. This process is called an involuntary bankruptcy. More commonly, when the debtor becomes insolvent, he/she will initiate bankruptcy, which is called the voluntary bankruptcy petition. The involuntary petition filed against the debtor by the creditor is the last resort. Declaring bankruptcy leads to serious consequences like difficulty in securing loans, insurance, or anything that requires credit, so it is important to consider the pros and cons of bankruptcy before filing.. Bankruptcy enables the person or organization to discharge a portion or the entire debt under the supervision and direction of the court.
After a debtor declares bankruptcy the creditor is stopped from proceeding or taking any further action against the debtor for recovery of any monies that are due and outstanding. If the debt is a secured debt then the creditor would have to request court permission, through a motion to lift the automatic stay before proceeding with foreclosure actions or repossession.
This article is not legal advice and is not intended as legal advice. This article is intended to provide only general, non-specific legal information. This article is not intended to cover all the issues related to the topic discussed. The specific facts that apply to your matter may make the outcome different than would be anticipated by you. You should consult with an attorney familiar with the issues and the laws of your jurisdiction. This article does not create any attorney-client relationship.