Bankruptcy
Bankruptcy may occur when an individual or business is unable to meet their debt repayment obligations. Bankruptcy involves handing over the control of property and finances to a trustee in exchange for protection from legal action by those whom you owe money to; your creditors. If you are declared bankrupt, the trustee has the power to sell some of your assets or to garnish part of your wages or salary in order to repay some of your outstanding debts.
Bankruptcy can be declared by the individual or business themselves or bankruptcy proceedings can be started by a creditor who is owed money.
The main advantage of being declared bankrupt is that your creditors will no longer have the right to collect payments from you. However, there is also a downside. For example, there are restrictions placed on you with regard to running and operating a business and your assets and wages will be controlled by the appointed trustee. You may also have to disclose your bankruptcy if you apply for loans or other credit at some stage in the future. Your credit rating will also be affected by your bankruptcy for a period of seven years.