Bankruptcy, or insolvency as it is otherwise known, is a legal declaration of an inability or an impairment to cover the debts owed to creditors. Simply put, it is an option that debtors and creditors have whenever an individual cannot pay his debts when they fall due.

There's admittedly a bad stigma around bankruptcy. However, with regards to dealing with individual insolvency cases, it should always be considered. Note that bankruptcy is not permanent. It is a temporary case, thus, enabling you, the debtor, to achieve a fresh start.

Who should seek bankruptcy relief?

As a general rule, anyone can go under. Even individual people in a partnership may become insolvent. However, the guidelines governing company or partnership bankruptcy and also the procedures to follow may be different from that filed by a person.

There are three ways through which one becomes bankrupt:

o Voluntary

The insolvent debtor files for bankruptcy inside a voluntary capacity.

o Involuntary

The creditor takes the initiative to request that debtor should seek bankruptcy relief for the purpose of collection.

o Supervisor-Initiated

Or anyone bound by an IVA.

Generally, bankruptcy is legally declared through the debtor himself. However, there are cases wherein an instance of bankruptcy may be requested by the creditors in order to get reimbursement from the debtor for the part of the total amount owed for them. This is what is meant by involuntary bankruptcy.

In an involuntary bankruptcy case, a order from the court is usually issued towards the debtor who is obliged to acknowledge the proceedings or accept them.

If you are the debtor, it is advised that you fully cooperate using the bankruptcy proceedings, even if you are disputing the creditor's claim. Any attempts at settlement ought to be addressed before the bankruptcy papers are due to be heard. To do so otherwise would be both expensive and difficult.

Bankruptcy is seen as a graceful way to avoid it of a debt. Its primary purpose is to give an honest debtor a "fresh start" in life. Hence, bankruptcy is essentially for the benefit of the debtor who are able to no longer pay for the bank notes that he owed.

Most of the time, individuals or organizations owe money to not only one people so when the assets aren't enough to pay for all the debts owed to every creditor, it is but fair to take the sum total of the assets and divide it up equally among the creditors in proportion to the debt owed.

The legal principle behind bankruptcy is that "one may not unjustly enrich himself in the expense of others." When the bankrupt person were simply to pay one creditor, what happens to the other creditors?

Hence, the other purpose of bankruptcy law would be to repay creditors in an orderly manner towards the extent of the total amount of properties and other assets the debtor has available for payment.

The resolution of the debtor's debts is accomplished through bankruptcy by dividing all his assets one of the creditors. The assets might not be enough to pay all, however the declaration does allow the debtor to partially pay off his debts and other financial obligations.