Bankruptcy

View FREE Lessons!

Definition of Bankruptcy:

Bankruptcy is a legal process to reduce or eliminate debts when a person or business is unable to repay them.

Detailed Explanation:

Families or businesses may encounter financial hardships resulting from an unexpected tragedy, such as a drastic drop in income caused by a severe illness or long-term unemployment. Businesses may expand, only to be forced out of business when an aggressive competitor unexpectedly enters the market and seizes many of its customers. Bills cannot be paid.

People and businesses file for bankruptcy with the Federal courts if they are unable to pay their bills and want legal protection. In the United States, Chapter 7 and Chapter 13 are the most common declarations. Chapter 7 involves the selling of assets to repay creditors. Chapter 13 is the reorganization of debt to make payments more affordable. An advantage of Chapter 13 is that filers are usually permitted to retain ownership of many of their assets, but restrictions are imposed until the debts are repaid. 

Bankruptcy provides businesses or individuals a release of obligation that enables them to begin again. It also provides creditors a means of partial repayment. Bankruptcy is common when the filer’s liabilities exceed its assets. An asset is something that has value—normally, monetary value. These include cash, stock, real estate, and a good or service that is in inventory or in the process of being produced. Liabilities are obligations to others. They include loans and contractual obligations such as wages owed to employees and vendors. 

Dig Deeper With These Free Lessons:

Entrepreneurs - Their Vital Role in an Economy
The Federal Budget and Managing The National Debt
Output and Profit Maximization

Search the Glossary


Market Overview:

Market quotes are powered by TradingView.com

Single Quote:

© 2018 Higher Rock Education and Learning, Inc. All rights reserved. No portion of this site may be copied or distributed by any means, including electronic distribution without the express written consent of Higher Rock Education and Learning, Inc.