The word bankruptcy means broken bank.
Bankruptcy is when a business or an individual cannot recover from outstanding debt. In most cases bankruptcy is imposed by a court order, often initiated by the debtor. Then a legal procedure is then followed for liquidating a business or property owned by an individual which cannot fully pay its debts out of its current assets.
A trustee is appointed to liquidate sell the company’s assets. And the money is used to pay off the debt, which may include debts to creditors and investors.
Bankruptcy is termed differently in some countries in the United States; bankruptcy is applied more broadly to formal insolvency proceedings. In the United Kingdom, bankruptcy is limited to individuals. While other forms of insolvency proceedings such as liquidation and administration are applied to companies.
In France, the cognate French word banqueroute is used solely for cases of fraudulent bankruptcy, whereas the term faillite (cognate of “failure”) is used for bankruptcy in accordance with the law.
In South Africa bankruptcy is considered if you’re insolvent and creditors have either threatened or already started to institute legal proceedings against you in order to attach your assets to have it sold on a sheriff’s auction. Assets usually fetch very poor prices on these auctions, due to the fact that there’s no reserve price and the auctions are poorly advertised.
Once thought of as something that happened only to businesses, bankruptcy is an option that has become increasingly popular for individuals. More and more people are using bankruptcy as a way of eliminating unmanageable debt, which is why the number of individuals filing for bankruptcy has grown worldwide considerably in the last few years.
The main purpose of bankruptcy is to give an honest debtor a fresh start in life by relieving them of their debts, subject to certain terms and conditions. If a debtor becomes insolvent, they might consider filing for bankruptcy as a debt solution.