Bankruptcy is a legal process that allows individuals or businesses that are unable to pay their debts to either eliminate those debts or restructure their payment obligations in a manageable way. Bankruptcy is governed by federal law, and there are several types of bankruptcy proceedings available, depending on the debtor’s circumstances and goals.
The bankruptcy process begins with a petition filed by the debtor, which is most common, or on behalf of creditors, which is less common. All of the debtor’s assets are measured and evaluated, and the assets may be used to repay a portion of the outstanding debt.
Pros of Bankruptcy
- When a business files for bankruptcy, its debts can be discharged.
- There are opportunities to discuss and put a suitable repayment plan in place.
- In bankruptcy, certain assets will not be confiscated or liquidated which still gives the business a chance to survive
- The business will be relieved from financial stress.
- It gives businesses who file for it legal protection to operate even against its debt.
Cons
- It has a negative impact on business or individual’s creditworthiness
- Although the business will be relieved of some debts, it is quite limited. There are debts that still need to be cleared. For example student loans, tax debts, etc
- There are chances that the business will lose its operating license in some fields
- Some assets can be seized or liquidated to pay off some business debt.
