Bankruptcy filing was once the most widely used method of Credit7 elimination and hundreds and thousands of consumers relied on the method of bankruptcy filing to eliminate their unsecured loans for ever. With bankruptcy, the consumers are not required to pay a single penny to the creditors. Now imagine a situation where creditor X has loaned out money to 1,000 consumers. Let us assume that each consumer owes $10k to the creditor. What if, due to an economic catastrophe, all these 1,000 consumers file for bankruptcy? The amount of money lost by the creditor will then be equal to 1,000x10,000 = $10,000,000! This is an incredible amount of loss for the creditor and it is obvious that the creditor will lose Credit0 equilibrium and will become almost bankrupt.
This small illustration shows that the creditors are affected by bankruptcy and they are affected badly because the amount of money that they lose is incredibly high. When the creditors face this loss, they fail to cover their costs, not to speak of the corporate liabilities. The loss of $10,000,000 is the principal loss. What about the interest loss? As the consumers file for bankruptcy, the creditors also lose their interest earning which they use to cover their corporate liabilities and invest in other projects. Thus, the creditors actually take a huge hit and they eventually become bankrupt when the number of bankruptcy filings soar up!
Looking at the consumers, it is true that the consumers need not pay a penny to the creditors. However, this is not the end of the chapter. The happy ending is followed by long term suffering and the consumers face loss of credit score. They lose their credibility and fail to get fresh credits for 7-10 years because the credit bureaus maintain the bankruptcy report on their credit history for that period. So, with bankruptcy filing both the consumers and the creditors are affected and they are actually affected badly!
Bankruptcy filing was once the most widely used method of Credit7 elimination and hundreds and thousands of consumers relied on the method of bankruptcy filing to eliminate their unsecured loans for ever. With bankruptcy, the consumers are not required to pay a single penny to the creditors. Now imagine a situation where creditor X has loaned out money to 1,000 consumers. Let us assume that each consumer owes $10k to the creditor. What if, due to an economic catastrophe, all these 1,000 consumers file for bankruptcy? The amount of money lost by the creditor will then be equal to 1,000x10,000 = $10,000,000! This is an incredible amount of loss for the creditor and it is obvious that the creditor will lose Credit0 equilibrium and will become almost bankrupt.
This small illustration shows that the creditors are affected by bankruptcy and they are affected badly because the amount of money that they lose is incredibly high. When the creditors face this loss, they fail to cover their costs, not to speak of the corporate liabilities. The loss of $10,000,000 is the principal loss. What about the interest loss? As the consumers file for bankruptcy, the creditors also lose their interest earning which they use to cover their corporate liabilities and invest in other projects. Thus, the creditors actually take a huge hit and they eventually become bankrupt when the number of bankruptcy filings soar up!
Looking at the consumers, it is true that the consumers need not pay a penny to the creditors. However, this is not the end of the chapter. The happy ending is followed by long term suffering and the consumers face loss of credit score. They lose their credibility and fail to get fresh credits for 7-10 years because the credit bureaus maintain the bankruptcy report on their credit history for that period. So, with bankruptcy filing both the consumers and the creditors are affected and they are actually affected badly!
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