Bankruptcy is, quite simply, the decision to declare an inability to pay off debts, and the process by which these debts may be written off. It’s bad for an individual, and it’s bad for the creditor to whom the debt is owed. And it’s on the increase, partly because of the culture of borrowing that many people have been led into, and partly because it’s a remarkably easy process to undertake. But it’s not always down to the individual to declare bankruptcy: it can even be declared against you. And if the voluntary option is a scary prospect, the involuntary sort will do you no good at all.

A company to whom you owe money can, if necessary, declare you bankrupt, if you are unable to pay them back, and seek to reclaim what little you can pay through the efforts of a Trustee, who will assess your financial standing, and work out what you can be required to part with, in order to recoup the losses to the company. This is clearly an unpleasant event, and one which you will hope never befalls you.

With a voluntary bankruptcy, you make the decision to declare yourself insolvent, and a Trustee can manage what assets you may have, to best appease the creditors you have inconvenienced. While still an undesirable thing to do, it can be the only way out for someone severely in debt, and unable to repay.

Your credit rating is basically reset. You will have everything taken from you that you are deemed able to manage without, to repay what little can be repaid. You are thrown in the deep end, and have to try and rebuild your financial life from nothing. But at least you’re not struggling against debts. Unless you are unable to solve the problems that have left you in debt in the first place, in which case, you need to seriously reassess your situation, because going bankrupt once a year is not the way to live your life.