Declaring bankruptcy means that you’ve filed a petition with the court to accept surrender of your estate for the benefit of your creditors. This process is also known as voluntary sequestration. The courts will only approve this process if they determine it’s in the best interests of your creditors. The different forms of bankruptcy are.
There’s Corporate Bankruptcy. It’s the legal process by which a company or other business declares that it’s unable to pay its debts and requires relief. The most popular in corporate bankruptcy is Liquidation of the business; this usually means that the business is dissolved.
This form of bankruptcy may be the best choice when the business has no future. It’s usually used when the debts of the business are so overwhelming that restructuring them isn’t feasible. It’s also appropriate when the business doesn’t have any substantial assets like if a business is just an extension of a particular owner’s skills.
In Liquidation bankruptcy, a trustee is appointed by the bankruptcy court to take possession of the assets of the business and distribute them among the creditors. After the assets are distributed, and the trustee is paid, a sole proprietor receives a discharge at the end of the case. A discharge means that the owner of the business is released from any obligation for the debts. Partnerships and corporations don’t receive a discharge.
For personal Bankruptcy
This form of bankruptcy is a reorganisation bankruptcy typically reserved for consumers, though it can be used for sole proprietorships. A company or an individual files a repayment plan with the bankruptcy court detailing how they’re going to repay their debts. The amount they’ve to repay depends on how much they earn, owe, and how much property they own.