Bankruptcy is declared by a court and is a situation whereby a person or a business is unable to pay their outstanding debts. The court will then appoint a trustee who will take charge of any property the person owned after the declaration. The trustee is charged with the responsibility of selling the property and paying the creditors, probably based on the order of occurrence of the debts or any other basis. The advantages of doing this are many.
A creditor would follow up on their debtors until they pay. The debtor may however not have the money to pay the creditor, so it does not make much sense following up on someone who does not have the money to pay the debts. Being declared bankrupt prevents creditors from bothering and harassing the debtor for their money.
A debtor is able to protect their property due to this declaration. Normally each creditor would want their debt settled first, so when they go to court and win the case, the debtor is required to pay. The creditor can take the property and sell in order to regain their money. When one is declared bankrupt, the creditor cannot simply reclaim the property from the debtor but the trustee is in charge of settlement of the debts. In addition there are specific items that cannot be sold during bankruptcy to settle debts. This property is thus safeguarded.
The credit score of an individual who has many debts is usually very low. The person therefore is not able to access credit from different financial institutions. When a person is declared bankrupt their credit score is improved after some time since the debts that one may have had are declared null and void. One is able to build their credit again from scratch.
Every person requires a fresh start when things do not go well. After someone is bankrupt, some of their property is sold to settle their debts. Debts that may be outstanding after that are considered null and void. A person is able to begin a new life without any debts.
Before a person files for bankruptcy, they have to evaluate all available options and settle on the option that best suits their needs. One should also be aware that some obligations cannot be cancelled, such as alimony payments, income taxes, and child support among others. Being declared bankrupt may therefore be the best decision that an individual makes or the worst decision that they make.