What does bankruptcy mean?

The Economic Times defined bankruptcy as "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".

According to the Australian Financial Security Authority of the Australian Government, "bankruptcy is a legal process where you declared that you're unable to pay your debts. By doing so, it can release you from most debts, provide relief and allow you to make a fresh start".

PricewaterhouseCoopers (PwC) Canada further explained that "under the Bankruptcy and Insolvency Act (the “BIA”), bankruptcy is a procedure which is designed to provide financial relief to individuals, corporations, partnerships and certain trusts with overwhelming debt burdens, by halting the legal actions of creditors (also known as a 'stay of proceedings').

This 'stay of proceedings' against creditors is implemented to prevent any unfair advantages of one creditor over another.

As for bankruptcy filing, The Economic Times described it as 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 summary, Investopedia summed up bankruptcy in the following:

  • bankruptcy is a legal proceeding carried out to allow individuals or businesses freedom from their debts, while simultaneously providing creditors an opportunity for repayment;
  • bankruptcy is handled in federal courts, and rules are outlined in the U.S. Bankruptcy Code (or, according to the Bankruptcy Act in your country);
  • there are various types of bankruptcy, commonly referred to by their chapter within the U.S. Bankruptcy Code (or, according to the Bankruptcy Act in your country); and
  • bankruptcy can allow you a fresh start, but it will stay on your record for a number of years depending on the type of bankruptcy filed.

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Last edited on 9 April 2020.