How Does Bankruptcy Affect the Economy?

When an individual, business or corporation finds themselves overwhelmed by debt, they are faced with the option of bankruptcy. There are different types of bankruptcy, but they all involve finding ways for the floundering borrower to come to terms with the lenders. This may involve a payment plan, the selling of assets to pay the loan, a discharge of debt or other solution. When big corporations declare bankruptcy, it makes the news; however, there are smaller bankruptcies taking place around the country almost every day. This begs the question, is it healthy for the economy?

Large-Scale Advantages of Bankruptcy

Whether talking about consumer or corporate bankruptcy, one of the main benefits of bankruptcy is that it provides a way for borrowers to get out of debt, even if it has some downsides to the individual or company going through it. This provides some safety in case unforeseen problems occur, which makes borrowing money a little less risky for consumers and businesses. This facilitates borrowing to stimulate the economy through buying goods, property or taking risks in business. Creditors also know that they have a last recourse in case they are unable to collect outstanding debts, so they feel more secure in giving out riskier loans.

Additionally, consumers have a chance to stimulate the economy even when they are in massive debt. If it were not for the option of bankruptcy, many of them would be forced to quit their job and not own any property out of fear of assets seizure. With the option for bankruptcy, these individuals have a chance to work with a bankruptcy lawyer, such as Brent George Law, to find a solution that allows them to continue to work, pay taxes and consume, all of which stimulates the country’s economy.

The Negative Impact of Bankruptcy

When individuals and/or businesses start to enter bankruptcy in large numbers, it does have the potential to negatively impact the economy. This is generally a sign of a large-scale problem in the economy, such as a depression or recession. When there are large numbers of bankruptcies, then consumers and companies start becoming more conscious about lending and spending beyond their means, which could stifle the economy. When consumers stop spending, this could lead to more companies losing profits and facing bankruptcy themselves.

Generally, bankruptcy is a positive influence on the economy. It allows consumers to find a way out of massive debt so they can once again start engaging in the economy through buying goods, services and large-scale assets such as vehicles and real estate.

For more information or inquiries about bankruptcy, visit our contact page, or call The Law Offices of Brent George at 805-494-8400. Our first consultation is free.