There are people who do not follow sound financial planning and indulge in reckless spending through their credit cards. Then there are those who take loan for various purposes but find themselves unable to repay these loans due to their poor spending
habits. When it boils down to creditors suing them for their money, there is no option left for such people but to file for bankruptcy. It is a legal way to get out of the financial mess that a person creates for himself or finds himself in because of unforeseen circumstances. If you decide to file for bankruptcy, your creditors have no legal authority to breathe down your neck for the payment of their money.
Bankruptcy can be of two different types. One is known as liquidation where all your assets are sold to pay the money of the creditors. Once your assets are sold and the creditors paid accordingly, they can not press you for the remaining amount under any circumstances. However, this process will remain like a blot on your credit history for a period of 10 years, which implies that creditors will stay away from giving you any loans.
When you opt for reorganization, the matter goes to court where it is decided which loans you need to repay in full, which ones to pay partially and which loans not to pay back at all. Your repayment is divided over a period of some years which makes it easier for you as all your debts get consolidated and you end up paying lesser EMI than you were paying to different creditors earlier.
It needs to be mentioned however, that there are certain loans or debts that are not covered by the laws of bankruptcy and these include debts not mentioned in your application, alimony or child support, student loans, tax debts and debts incurred because of drunk driving.
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