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| What is Bankruptcy ?
When a business has more debt then his assets then it can file for bankruptcy. Bankruptcy is a state which helps the person or the company to settle the accumulated debts. After filing for bankruptcy a federal court will choose what will happen and there are two ways out the first one is liquidation this means that the debts are erased and there's the second one which is reorganization, this stands for a plan what is presented in front of the court containing the ways on how the debt will be payed.
For example a person or a company reaches a state in which can't pay the debts accumulated then it can file for bankruptcy. This state gives a chance to the business to get a fresh start while shielding from the creditors. Creditors get also a chance of repayment based on the companies resources. While the company gives up it's assets he's debts might be wiped out or partially wiped clean. There's a big difference between being bankrupt and insolvent. A bankrupt person or company can still pay out all his debts and continue on running his business, insolvency means that there's no hope what so ever and he'll be in a bottomless pit accumulating more and more debt until liquidation will be inevitable. | | | | |
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