Consequences of Bankruptcy

By editor
In Accounting And Banking
Sep 19th, 2014

What do you mean by bankruptcy?  To put it simply, it means one is openly admitting his inability to pay off his existing debts. When you file bankruptcy petition, the case will be taken up by one of the bankruptcy courts functioning in different areas. Only such courts as are situated within the jurisdiction of the concerned state are empowered to take up these cases. Every state has its own ‘set of rules and regulations’ as regards the terms and conditions applicable. Needless to say, these things depend on various factors. A person who is not in a position to settle the existing dues will find it difficult to have discussions with the creditors and reach an amicable settlement. A bankruptcy comes to his rescue and helps him to come out of the distress.


Generally, a bankruptcy is known either as an ‘individual bankruptcy’ or ‘business bankruptcy.’ As far as ‘business bankruptcy’ cases are concerned, there is a big advantage for the business organizations. They can ask for and get ‘protection.’ As per the U.S. Code, six types of bankruptcy are there. And these types fall under various chapters. Each of them clearly mentions about the eligibility criteria and the procedural aspects relating to these types of bankruptcy. It will be good to know about the plus and minus factors in this connection.

As far as the creditors are concerned, they have the satisfaction of getting back the loan, in full, with interest due. Therefore, the creditors would never think of taking drastic action against the borrowers, for recovering the dues. In some cases, the special courts choose to cancel a portion of the debt. Thus, the debtor becomes debt-free once the case is over. In case you have taken only an unsecured loan, there is no chance for the creditors to claim any rights over your property. So there is no threat of losing it. Over and above these things, when you are discharged of the debt by a bankruptcy court, the debt amount is not taxed.

Why should you avoid bankruptcy?

All said, when you file a bankruptcy petition, you are putting yourself in an unenviable and shameful position. Though it is said ‘public memory is short,’ people, in general, do not take such a thing lightly; they are inclined to treat the person filing bankruptcy with scant respect. The ‘scar’ will be there on you for the rest of your life and you will certainly feel uneasy over this. Further this fact will certainly have a negative impact on your credit and chances of your getting loans in future. Even in the matter of getting a good job, this will come in your way and spoil your chances. Like ‘adding insult to injury,’ in the event of any of your properties coming under the ‘non-exempt’ category, you will most certainly lose it since it becomes ‘disqualified’ to be adjusted against your dues. Added to these will be legal costs and disadvantages tax-wise.

In order to play it safe and keeping in mind the need to protect your name and financial standing, it will be better to think umpteen times before you decide to file bankruptcy petition. You will do well to consider all the pros and cons of bankruptcy and the impact it will have on you, both at present and in future. You can also explore whether there is any other way out to avoid filing bankruptcy.  Only after you have exhausted all other options and feel there is no way out, you should take this ‘most unwelcome’ decision of filing bankruptcy.

Comments are closed.