Considered to be a hot topic by some and a grim reality by others, bankruptcy is a serious issue that many people around the world find themselves having to deal with. A large number of people live in fear of bankruptcy, and even more live with a number of misunderstandings and half-truths that prevent them from knowing exactly what bankruptcy is and how it works. Before making decisions about whether or not to file for a personal or business bankruptcy, it's important to take some time and research both what bankruptcy is and what it isn't… and to see what alternatives to bankruptcy might exist.

The information provided here isn't meant to answer all of the questions that you might have concerning bankruptcy, but it will hopefully help you to find some of the answers that you need and get you that much closer to making a very important financial decision.

What Bankruptcy Is

As the name might imply, bankruptcy is the process of declaring yourself or your business legally bankrupt… in other words, you're in debt to the point that there isn't really any hope of recovery. Bankruptcy is a legal process that can take some time, since the court will have to appoint an individual to sort through your debts, recommend some debts for discharge (meaning that they don't have to be repaid), and help set up a plan to have other debts repaid by a direct withholding from your paycheque.

A variety of different types of bankruptcy exist depending upon where in the world you live, though most have pretty much the same purpose. It can take several years before a bankruptcy is discharged, during which time new credit lines are nearly impossible to get if they are legally allowed at all.

What Bankruptcy Isn't

Unfortunately, many people rush into bankruptcy thinking that it will solve problems that it isn't designed to. Bankruptcy isn't a “quick fix” to any financial problems, and it won't leave you with a clean credit history after it's discharged, either… it actually does the opposite, since most creditors don't want to do business with someone who has recently discharged a bankruptcy.

Additionally, certain types of debts such as alimony payments, child support payments, and back taxes that are owed aren't discharged by a bankruptcy; they will still be due even after the bankruptcy itself has been discharged.