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Why do people file bankruptcy?


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Answered 2007-02-02 07:30:00

Bankruptcy is protection from people who are owed money. When a person has so many debts that they cannot pay them in a timely fashion, they are liable to their property being seized by the creditors, as well as wages being garnished. To prevent a person from losing their means to survive, laws have been enacted which allow a person to go before a judge and arrange for some of their debt to be forgiven, in return for surrendering some of their assets and income. This allows creditors to receive some compensation for the money they have lost, and the debtor to continue to work and generate income. These laws grew out of practices such as putting people who could not pay their debts in prison, where they could not earn any money at all, and taking a persons house for a debt which totaled a small fraction of what the house was worth.

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