Definitions 
Bankruptcy is a legal proceeding ordered by a court which occurs when an individual or organisation becomes insolvent and cannot pay creditors. We will be focusing on bankruptcy for individuals in the article.
Bankruptcy is something that no-one wants to go through. The reality is, in most cases, that there are severe consequences for the individual that affect credit ratings and financial situation.
Causes of Bankruptcy
Bankruptcy can (though it is by no means certain) occur when an individual or organisation is no longer able to meet obligations regarding accrued debts. In principal, lenders should only lend money when they are relatively confident about the borrowers ability to pay back the loan. However, major unexpected life changes such as divorce or unemployment can change the individuals earning ability and thus his or her ability to service debts.
Avoiding Bankruptcy: Debt Negotiations
The fact that an individual is not able to service a loan does not always result in bankruptcy. Debtors are often able to negotiate with with lenders about payment schedules, the applicable interest rate, etc... It is, after all, in the lenders interest to ensure that they, at the very least, get the principal of their loan back.
Bankruptcy proceedings
Bankruptcy proceeding can generally be initiated by a creditor. In some situations debtors may even decide to start bankruptcy proceedings him or herself.
Consequences of Bankruptcy
The consequences of bankruptcy vary. Here are selection of some highly undesirable consequences that are imposed in various countries.
- Bankrupts may not be allowed to run a business
- Bankrupts may have their access to financial products restricted
- Assets seized (in some countries, certain types of assets are exempt from the forced sale) during the bankruptcy are lost and it usually takes some a significant amount of time to be released from bankruptcy status.
The benefit of bankruptcy is principally that (once released) the debtor is released from all accrued debt.
Alternatives to Bankruptcy
In some countries, various alternatives to bankruptcy exist. The benefits and undesirable consequences of these alternatives are usually quite different.
