Bankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay their creditors. A declared state of bankruptcy can be requested or initiated by the bankrupt individual or organization, or it can be requested by creditors in an effort to recoup a portion of what they are owed. However, in the overwhelming majority of cases, the bankruptcy is initiated by the "bankrupt" individual or organization.
People facing debt traps often find no ways to come out of it. They constantly have to face harassment by creditors and have to suffer because of the lack of awareness of their rights as a debtor.
While declaring bankrupt can be last option for some yet there are alternatives that can be adopted as a means to come out of debt trap, without actually filing chapter 7 or chapter 13 of bankruptcy.
A Chapter 7 filing means that the business intends to sell all its assets, distribute the proceeds to its creditors, and then cease operations.
Purpose of Bankruptcy
The primary purpose of the laws of Bankruptcy are: (1) to give an honest debtor a "fresh start" in life by relieving the debtor of most debts, and (2) to repay creditors in an orderly manner to the extent that the debtor has property available for payment.
Bankruptcy allows the debtor to resolve his debts through the division of his assets among his creditors. Additionally the declaration of bankruptcy allows debtors to be discharged of most of the financial obligations, after their assets are distributed, even if their debts have not been paid in full. During the pendency of a bankruptcy proceeding, the "Debtor" is protected from extra-Bankruptcy action by creditors by a legally imposed "stay."
