Before the question of bankruptcy comes up, insolvency must be discussed.
If a person or company is insolvent, it means they cannot pay the debts they owe. In the case of individuals, it means they do not have enough income to pay some or all of their monthly bills. Minimum credit card payments, their car loan, rent or mortgage, and utilities are examples of payments people who are insolvent cannot meet. They soon enough find themselves being harassed by collection agencies and face the prospect of losing their cars and homes.
Insolvent individuals are often in that predicament because they have lost their job, but it can also happen because there has been an emergency that has drained their resources. Bad investments, gambling, or simply living beyond one’s means for too long can also lead to insolvency.
Bankruptcy is a legal process by which an insolvent person gives up their remaining assets in exchange for relief from their debts. The assets are sold and creditors are paid out of the proceeds. Creditors never get all the money they were owed when the individual was declared bankrupt.
The consequences of going bankrupt are severe. They prevent an individual from borrowing money for many years and it is difficult to go through life without credit these days. It can even make it close to impossible to rent an apartment.
An insolvent individual should consider all possible alternatives before declaring bankruptcy. This is where a good bankruptcy lawyer comes in. Because your creditors will lose most if not all of the money you owe if you declare bankruptcy, your lawyer may be able to negotiate loan extensions or other arrangements that will allow you to catch up with your debts. Your credit rating will still take a hit for your missed payments, but with time and careful planning, good credit can be re-established far sooner than if you declare bankruptcy. This is one way working with a bankruptcy lawyer can help an individual avoid an event (bankruptcy) that will have serious life consequences for years to come. Bankruptcy certainly puts a strain on marital relationships and often leads to family breakdown and divorce.
Bankruptcy can affect people in ways besides their own insolvency. Someone who owes you money may declare bankruptcy with the result that the debt will be wiped out and you may only see a few cents on the dollar, if anything at all. In this example, if the amount of money you are owed is large, you should carefully consider speaking with a bankruptcy lawyer. However, should you need to take advantage of the warranty for an expensive item you purchase but the company has gone bankrupt, you will almost certainly be out of luck.
In addition to working with a bankruptcy lawyer if you become insolvent, another situation in which it is always wise to consult a bankruptcy lawyer is if the company you work for is facing bankruptcy. You will need to know your rights to your unpaid earnings and other monies you will be owed if the company goes out of business. It is very likely the intervention of a bankruptcy lawyer on your behalf (or on behalf of you and other company employees) will be necessary to ensure your legal rights are respected.