What is Bankruptcy and how does it Work?

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What is bankruptcy? Bankruptcy is when an individual or a business can't meet their debt obligations. They then go to a court to have their debts reorganized or their assets liquidated and remaining debt discharged. This word has bad connotations and for good reason. It will take the mess you made of your money and credit and make a bigger mess of your credit and records.

Don't get me wrong, in some situations, bankruptcy is absolutely necessary. Some businesses tank in an economic downturn and have no choice but to have their debt reorganized by the courts. If it happens, it happens.

On the other hand, many individuals are just irresponsible with their money. Maybe nobody ever taught them how to manage their money, but they also never tried to make sense of it themselves. If you spend money you don't have, you're going to have to pay it back at some point. That's just how it works.

If you are simple horrible with your money, you might not get out of it so easily. It has now become harder to declare bankruptcy. For example, if you make more than a certain amount of money, you will be forced to declare chapter 13 instead of chapter 7 where you debt is reorganized, not discharged. While you get to retain your property, you still have to pay your debts.

Your best fix is to avoid debt altogether. Never spend money you don't have. It will only dig you a deep hole of debt that will get bigger and bigger as interest gets to it. There are different types of bankruptcy, so make sure you know the differences between them.