An individual or company goes through various financial situations over time. One of the most dramatic contexts is bankruptcy, which brings serious consequences to all involved. Not everyone is clear about this concept, so many people ask themselves: “WHAT IS BANKRUPTCY?” Bankruptcy is a financial situation where an individual or company has to stop carrying out its activities due to its inability to pay its debts with its available resources. The total assets of the individual or company cannot pay the total debt to creditors. An individual or company is bankrupt because its net worth is negative.
Unique situation
Bankruptcy is a unique financial situation with its own characteristics that you should be aware of in order to better understand it.
-Bankruptcy is an objective situation with a legal framework. This avoids taking advantage of this situation with fraudulent goals.
-The assets of the individual or the company are of lesser value than the amount of the debts.
-The bankruptcy affects the whole company, which has a negative influence on its legal situation. The only way a company can avoid bankruptcy is to sell its assets to another company.
-Bankruptcy is an irreversible situation and its final destiny is disappearance. However, other companies can be created, but the company that suffered a bankruptcy cannot exist again.
Conclusion
When we ask ourselves WHAT IS BANKRUPTCY, we must think of a permanent and irreversible situation. This problem has only two possible solutions: that the creditors forgive the debtor that the company manages to increase its assets so that they are worth more than the debt it owns. A company must announce its bankruptcy because this triggers certain legal protections. This prevents creditors from taking legal action against the company. It should be clarified that a company or individual must meet certain legal requirements in order to file for bankruptcy.
