Have you ever encountered the b-word? In the world of finances, we’re not talking about the one that rhymes with “itch.” Though to be fair, sometimes life can be one of those, too, and that often leads to exactly what we’re talking about!
Bankruptcy.
The ol’ B-K, the bank buster, you get it. No one wants bankruptcy, and it usually happens because of bad choices and circumstances. But is there more to bankruptcies than meets the eye? 🧅Let's peel this onion and try to understand what it’s really all about.
Here are Five Fast Facts about bankruptcy:
- 🧑⚖️ Definition, Please - Bankruptcy is a legal process where a person or organization formally states they can’t repay their debts. It’s a way to start fresh without a huge debt load dragging you down. The basic idea is that a judge examines the situation and determines which debts you can avoid and which ones you can’t. Hopefully more of the first!
- 😣 Most Common Chapters - There are several different types, named by their chapters in the U.S. bankruptcy code. The most common are Chapter 7 (for liquidating assets to call it quits) and Chapter 11 (for reorganizing to keep going). Is there a chapter for bankrupt global superpowers? Just asking for a friend…
- 😱 How Often Does It Happen? There were over 400,000 bankruptcies filed in the U.S. in 2021. Most of them (all but 14k, in fact) were individuals rather than businesses. And it’s not a “rich people thing” - the median income for those individuals was less than $45k. Bankruptcy lawyers have to make money on volume, apparently. Who knew?
- 🏢⚕️ The Causes - The most common causes of bankruptcy are job loss, medical bills, and mortgage expenses/foreclosure. Irresponsible spending is only fourth on the list (but first in our hearts).
- 🎲 The Effects - Make no mistake, this is not a blanket Get-Out-Of-Jail-Free card! Sure, the judge may cancel some of your debts…but likely not all of them. And any big charges you rack up in advance of filing may be considered fraud, so that’s definitely not something you want to do. And remember, your credit will be torched for 7-10 years, which means you’ll pay high interest on EVERYTHING for years to come (if you can even get approved for financing). But if you’re planning to go live off the land in a forest somewhere, you’re good to go.
🔥Bottom line: Bankruptcy is a very serious thing, and should not be considered lightly. It has a huge impact on every aspect of a person’s or company’s well-being. But in some cases it may be the only option for finding a way to move forward. Do your research, be informed, and consult the professionals before you take this step.
What’s your experience with bankruptcy?
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