Why Bankruptcy is still considered the safest option

During the hard times most of the people usually see the word bankruptcy in a negative way, but in real life it is actually a good and useful law procedure. It is not an end it is more a new beginning and this procedure is aimed to settle the situation between debtors and creditors.

The bankruptcy process is a legislative mechanism that handles a fair and peaceful resolution of financial conflict between two sides – the debtors and the creditors. The creditors in this process seek to recover their loans and protect their financial security and debtors seek a financial solution and opportunities to make a new start.

As for the debtors when they file for bankruptcy they step into a complicated process that requires them first of all to be honest. If anything in the situation is not clear the whole process can end with additional penalties for the debtor, but if everything goes well the debtor will be discharged of his debts by distributing his property among creditors in accordance with legislative priority of distribution scheme. Mostly the debtor is discharged from a significant part of his debts, in some cases even from all of his debts. If a debtor had multiple bankruptcies filling for bankruptcy will be harder and the whole process will become harder. The legislative and judicial treatment will be much stricter during the second and ensuing bankruptcies. The government actually supports honest people, who simply had bad luck, but there is much less support for people who just can’t handle business relations and also no one wants to turn a helping hand of the law into a useful tool for frauds. One of the most important things is that after a bankruptcy is filled a debtor will be protected from creditors’ pressure and the whole situation will be handled by the law, where all creditors are treated equally. After a bankruptcy the creditors can’t start any new legal actions or to continue existing ones against the debtor or the third parties in possession of bankrupt’s property, collection agencies can’t enforce the debts and the bankrupt is allowed to keep certain property.

Bankruptcy has also negative consequences for the debtor. Aside from the deprived of a part of the income, lost civil privileges (like holding money in trust or be elected to certain civil positions), distributed property and a negative credibility in the community the debtor will also have some ongoing business limitations. The bankrupts’ credit rating will hold the information about bankruptcy for seven years after the discharge, the bankrupt will give up legal title and control of non-exempt property, bankrupt also has a limited contractual capacity and all contracts are reviewed by a trustee in bankruptcy. In addition bankrupt has a number of duties that must be performed before and after the discharge. A number of contracts with the debtor may be cancelled due to bankruptcy.

Still after the big list of negative consequences bankruptcy is one of the best solutions for critical business situations.

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