Basics of Bankruptcy

Bankruptcy can be defined as a state of economic condition for an individual or a company when he is declared as insolvent or is unable to pay his debts to the creditors. The word “Bankruptcy” has been derived from the Italian word Banco or Banca which means Benches. The history behind this is that during seventies the traders in Italy used to do transact their financial in benches. If any trader or businessman is unable to pay his debts then his bench is broken by the other traders, from this broken bench the word Bankrupt is derived. The main cause for any Bankruptcy is over consumption. The business faces bankruptcy due to excess of liabilities over assets while over consumption compared to income leads to individual bankruptcy. The word bankruptcy should be avoided as far as possible since it has serious legal implications in ones financial records. One of the most negative effects of being declared as insolvent is that a person will not get any type loans easily from any Banks. The loan processing system do varies from country to country and from different types of Loan. Even if the discharge from the Chapter 7 or Chapter 13 has been granted to someone, it will be difficult for a debtor to reorganize his creditworthiness again in the financial sectors. The loan if approved will charge a higher rate of interest and other processing charges. The person has to pay a higher down payment in case of EMI is approved for some purchases made. Bankruptcy is an undesirable situation and one must think of before being declared as insolvent. The word bankruptcy will be made a part of your credit history so better be avoided as far as possible. There are some measures which can help to avoid the burden of debts or an ultimate bankruptcy.

• Preparing a financial budget and following the same in your day to day financial planning.

• Analyzing the budget and deviations from the budget if any periodically i.e. weekly, monthly or quarterly so that the reasons can be best understands for deviation timely and proper measures can be implemented to prevent the undesirable situations.

• Avoid relying expenses on credit cards and even if cards are used it should be used with proper cautions i.e. making the bill payments timely and verifying the financial transactions properly, checking the interest rates charged will help to make better use of credit cards.

The above ways are quite simple to avoid the so called undesirable situation while we can definitely follow a simple principle of spending what is earned.