Bankruptcy is often considered the last resort for people struggling with debt because there are other debt solutions to consider first. It is a legal declaration for people who cannot afford to pay their creditors. A state of Bankruptcy can be declared by creditors in an effort to reclaim in part money that is owed to them. A majority of Bankruptcy cases are initiated by the individuals who feel they cannot pay their debts.
Bankruptcy can occur when an individual’s debts are greater than his or her assets. Declaring bankruptcy means an individual is financially insolvent and can be relieved of outstanding debts. It is often considered as a last resort for people with serious and ongoing debt problems.
The bankruptcy proceeding has two aims:
To free the individual from the pressures of creditors (people they owe money to) and to enable him or her to make a fresh start.
To ensure that all assets (such as property and investments) are distributed fairly among the creditors.