What is the Point of Bankruptcy?

September 21, 2010  |  bankruptcy

What is the Point of Bankruptcy?

The main point of a bankruptcy is to provide protection to those that need it and second chances to those that deserve it.

Bankruptcy, of course, isn’t just about wiping out debt and protecting people from collection calls. It’s also about fairness.

Personal bankruptcy promotes fairness for both the consumer and those they owe money to – their creditors.

Fairness to Creditors

Bankruptcy law in Canada helps protect creditors from taking unfair losses at the hands of insolvent individuals and businesses.

When an individual files bankruptcy, they are often required to give up certain assets. When that happens, a trustee in bankruptcy may liquidate those assets and use some of the cash to payback their creditors.

If a person struggling with their credit does not file bankruptcy and stops paying their bills completely, the creditor is often left with no choice but to write their loan off as bad debt. If that happens, the creditor is at risk of taking a major or complete loss.

Bankruptcy can often reduce the size of a creditors financial loss by ensuring they receive at least part of the money owed to them.

Protection for Debtors

Without bankruptcy protection and bankruptcy law most creditors would continue to aggressively seek debt from those that are unable to repay it. Bankruptcy helps in this situation by guaranteeing that the applicant is free of aggressive collection practices while they work through their financial troubles.

A Fresh Start

When the responsibilities of bankruptcy are performed properly a consumer’s debt is absolved.

With a combination of lightened financial duties for the bankrupt and a reduction in the monies received by their creditors, both parties – with the help of a trustee – are essentially working together so that they can go their separate ways, leaving a clean slate between them.

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