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What is 'Bankruptcy'
Definition: When an organisation is unable to honour its financial obligations or make payment to its creditors, it files for bankruptcy. A petition is filed in the court for the same where all the outstanding debts of the company are measured and paid out if not in full from the company’s assets.
Description: Bankruptcy filing is a legal course undertaken by the company to free itself from debt obligations. Debts which are not paid to creditors in full are forgiven for the owners. Bankruptcy filing varies in different countries.
In India if you file for bankruptcy it will not go down well with your credit rating, which means that it may be tough for you to get a new loan if you plan to start afresh. However, it would save you from any financial trouble.
In the United States there are three main chapters which are followed – Chapter 7, 11, and 13. Let’s understand each of them in detail.
A person or an organisation files for Chapter 7 under the US bankruptcy law in which they liquidate their assets to repay their debt obligations. Filing Chapter 7 means that all collection efforts from all creditors should be stopped at once.
Chapter 11 under the US bankruptcy law means that a company will attempt to restructure their debts in order to pay the financial obligations. This particular bankruptcy code is for companies only and not for individuals. Chapter 11 shows the intent of the company to pay off its debts which is a good sign. It gives them the chances to remain in business, but at the same time try and work out methods to pay off its debts.
Chapter 13 says that individuals will attempt to restructure their resources or cashflow to pay off debt. Individuals or self-employed persons can file for Chapter 13 but corporations and partnership firms cannot.
Description: Bankruptcy filing is a legal course undertaken by the company to free itself from debt obligations. Debts which are not paid to creditors in full are forgiven for the owners. Bankruptcy filing varies in different countries.
In India if you file for bankruptcy it will not go down well with your credit rating, which means that it may be tough for you to get a new loan if you plan to start afresh. However, it would save you from any financial trouble.
In the United States there are three main chapters which are followed – Chapter 7, 11, and 13. Let’s understand each of them in detail.
A person or an organisation files for Chapter 7 under the US bankruptcy law in which they liquidate their assets to repay their debt obligations. Filing Chapter 7 means that all collection efforts from all creditors should be stopped at once.
Chapter 11 under the US bankruptcy law means that a company will attempt to restructure their debts in order to pay the financial obligations. This particular bankruptcy code is for companies only and not for individuals. Chapter 11 shows the intent of the company to pay off its debts which is a good sign. It gives them the chances to remain in business, but at the same time try and work out methods to pay off its debts.
Chapter 13 says that individuals will attempt to restructure their resources or cashflow to pay off debt. Individuals or self-employed persons can file for Chapter 13 but corporations and partnership firms cannot.
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