Over the years you may have been lead to believe that the idea of bankruptcy is to protect both the debtors (those owing the money) and the creditors (those owed money) when this happens. The basic idea of this is not to allow the debtors to run up any further debt, and so become worse off; and at the same time protect the creditors by no longer allowing them to give the potential bankrupt more credit. Over and above this the debtor’s assets are confiscated, liquidated and turned into cash to repay the creditors.
A very noble plan - that seldom really works out in that way. In fact in most of the cases examined in gaining background material for this article, nothing like that happened.
In fact most of those people who filed for bankruptcy, or were forced into it, suffered several years of shame, loss of confidence, lack of credit and in most cases did not feel that the bankruptcy helped them in anyway at all.
You may feel that is a very biased view from the person whose fault it normally is when one gets into this situation, namely the debtor. However, you find that the majority of creditors involved in these kinds of cases come away feeling they have been cheated too; and very few are satisfied with the results.
So who really does gain from a bankruptcy? Possible three different areas of people actually make up quite a large and elite group who will not want this form of legislation changed at all. They are basically the government in the form of the tax collecting sector (tax man), a group of lawyers and a group of administrators in trust companies (normally known as Trustees) who wind up the bankrupt estates, re-distribute their assets and report back to the courts in most countries.
In nearly all cases examined the last people to benefit from a bankruptcy would be the two most severely effected and involved sides made up by the debtor and creditors involved. To understand this more clearly you should understand that there is a group of people who make up an entire economic sector of the community who no longer see debt as anything more than ‘something’ or a commodity you can transfer or trade in.
A large portion of the legal sector and debt administrators belong to this group. People involved in claiming ‘to help’ others get though debt and bankruptcy. In fact these same people may even advise a creditor to “sell off their debt”, or write it off at a financial loss to avoid not getting any money at all through a debtor going bankrupt.
They then attempt to recover the debt though one of their subsidiaries and, in the process, increase the size of the debt with additional costs they add to the debt for their work. In the end they may then “sell” the debt off at the exact same price they paid for it (percentage wise) to another debt collecting business, but because the debt has doubled in size they make a 100% return on their money!
While the legal people involved in a bankruptcy have their fees guaranteed, along with the tax man (via the debtors assets), and then the administrators take a fixed percentage of the recovered assets this process will continue favouring the ‘bottom feeders’ and not the real victims of bankruptcy.
But is there a better answer?
http://bankruptcy-guide-to.com/a/363068/Who+Are+the+Winners+in+Bankruptcy%3f.html