There are two ways a person can defend creditors when they can no longer pay debts to banks: entry into insolvency and personal bankruptcy declaration. Insolvency proceedings would be similar to that currently applied in companies: a person enters into insolvency and cannot be enforced over the process. Borrowers may declare insolvency through a request made trough the court and the settlement will be made not later than five days after filing.
Thus, from the opening of insolvency proceedings shall suspend all individual prosecution against the debtor, meaning that it can be executed by the bank and no longer running time penalty for not paying the rates. If a debtor – individual – falls into insolvency and comes with a plan of reorganization of the credit agreements, some of his debts may be deleted. If someone declares personal bankruptcy because he cannot pay the loan, his personal assets will be sold in more than five months from the date of entry into bankruptcy, to recover the loan.
When it comes to bankruptcy of a company, there are some advantages, but also disadvantages. One advantage is related to bankruptcy protection against creditors of the debtor, who can recover debts by selling assets. Another advantage is related to the restructuring, although a company or its creditors asked the bankruptcy, the court may rule for a reorganization, in which case the company has chances of survival. Deleting penalties is another advantage. Once that bankruptcy proceeding was declared, the interest and penalties for non-payment for the company debts are no longer calculated.
The main disadvantage is related to the image. Once declared a bankrupt, the image in the market, but in the eyes of future creditors, becomes more sensitive. If the bankruptcy have significant changes in the economic sector or if generates a major social problem, the company may face a very difficult market reentry.
Bankruptcy of a company presents several disadvantages for those who have to recover debts. The creditors who loaned the company without taking guarantees may end up not recover anything from the amounts lent. Preferential creditors may recover something in extent if there are sufficient assets to cover debts.