Simple Does It: Bankruptcy Basics

Bankruptcy. Just seeing the word might induce a shudder at its implications. It's a topic that might not be on the top of your list to discuss, but it makes up a significant part of our financial culture. In an effort to keep financial terms in a simple, easy-to-digest format, we'll give bankruptcy and all of its connected points the "simple does it" treatment.

Debtor and Creditor

In it's simplest form, bankruptcy is the point at which someone who owes money does not have the means to pay who they owe. Debtors, or those who need to cough up the cash, can be someone like you and me or it can be a company or organization. The creditor is the person, organization or financial institution that claims the debtor owes them moolah.

When the debtor can't pay their debt or debts, they can file for bankruptcy. Really, bankruptcy is a legal proceeding that seeks to help a debtor navigate through their sizable debt as well as help the creditor obtain what's owed to them. In other words, bankruptcy's aim is to help find a middle ground in which both parties can work out an agreement that best suits everyone involved.

Assets and Debts

Another couple of basic bankruptcy terms that are essential to understanding the big picture of bankruptcy are assets and debts (aka liabilities). Of course, debts are pretty common sense; they are, essentially, what's owed to someone, usually money. Assets, on the other hand, might not necessarily be whatever money a person has. While assets could certainly be one's savings accounts, stocks, and CD's, assets could also be expensive jewelry, home equity and a vehicle.

The Rest of the Story

This is just the tip of the iceberg as far as bankruptcy goes. There are the different chapters of bankruptcy to consider as well as a slew of definitions connected to the subject. MomVesting has plans to tackle all the ins and outs of bankruptcy, including details on each chapter as well as those definitons that could induce head-scratching (what the heck is a 341 meeting anyway?). Stay tuned as we continue our "Simple Does It" series with a focus on bankruptcy.

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