The main purpose of bankruptcy is to give an honest debtor a fresh start in life by relieving them of their debts, subject to certain terms and conditions. Two main parties are involved in bankruptcy filings the debtor and the creditor. The debtor is the party who has debt, or owes money, to the creditor. A debtor can be a company or an individual.
The creditor is an organisation or company that claims the debtor owes property, service, or money. Most bankruptcy cases involve several creditors. But also if a debtor becomes insolvent, they too might consider filing for bankruptcy as a debt solution.
Filing for bankruptcy may not be such a bad thing for an individual to do after all. As a result of high inflation, more and more people are finding themselves with insurmountable debt. If you’re deeply in debt, filing for bankruptcy could allow you to rebuild your financial life. However, this is something to consider only after you’ve exhausted all other options.
Debtors can have two different types of debt secured and unsecured. With secured debts, creditors have the legal right to something of the borrower if the borrower fails to make the proper payments. Secured creditors are always paid first in a bankruptcy settlement.
Your mortgage, for example, is a secured debt. By loaning you the money to pay for your house, the bank gets a lien on it. If you stop making mortgage payments, the bank can foreclose and take possession of your house.
A creditor will usually keep instituting legal proceedings against the borrower until the debt has been settled in full. This includes the interest on the capital amount, legal fees, collection commissions and disbursements. The legal fees are usually charged on attorney client scale, which could easily result in exuberant legal fees being charged.