Define bankruptcy in economics: When an organization fails to meet its financial responsibilities or make payments to its creditors, it declares bankruptcy.
The bankruptcy procedure starts with a petition filed by the debtor, which is most usual, or on the representation of creditors, which is uncommon. All of the debtor’s assets have been counted and assessed, and they might be utilized to pay off some of the existing debt.
The federal courts are where all bankruptcy cases are handled in the United States. A bankruptcy judge decides every bankruptcy case in the federal system. This involves determining a debtor’s eligibility to petition for bankruptcy and whether they should be granted a release of their debt.
3 types of bankruptcies
- Chapter 7 Bankruptcy
- Chapter 13 Bankruptcy
- Chapter 11 Bankruptcy
Chapter 7 Bankruptcy
Another name for Chapter 7 is a liquidation bankruptcy. Because it requires the sale of the majority of the debtor’s assets to pay creditors. Almost of people who file a Chapter 7 bankruptcy have at least some of their obligations discharged. It can be utilized by both individuals and businesses.
Chapter 13 Bankruptcy
Another name for a Chapter 13 filing is a wage earner’s plan. In exchange for paying off debts over a longer length of time, usually 3 to 5 years, it allows a debtor to save more assets.
Chapter 11 Bankruptcy
Chapter 11, commonly known as bankruptcy reorganization. It is frequently connected to businesses and partnerships in business. However, business owners like sole proprietors may also use a Chapter 11 petition. Chapter 11 includes a repayment schedule, just like Chapter 13.
Advantages of Bankruptcy: Define Bankruptcy in Economics
- Older than three-year tax debts may be discharged in bankruptcy.
- Your credit will be damaged by missed payments, defaults, repossessions, and lawsuits; bankruptcy is frequently a simpler solution.
- Bankruptcy gives you a fresh start.
- Nothing can eliminate student loan debt, however filing for bankruptcy will stop your lenders from taking active collection measures.
Disadvantages of Bankruptcy: Define Bankruptcy in Economics
- The majority of tax debt is not dischargeable.
- Bankruptcy will damage your credit for a period of time until you attempt to rebuild it.
- Student loan debt cannot be discharged in bankruptcy.
- Your existing credit cards will be lost.
- When you file, your name will appear in court documents.