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What Is Bankruptcy? What Happens When A Company Goes Bankrupt? (Basics!) (#20)

 

What Is Bankruptcy & What Does Going Bankrupt Means & When Does It Happens?

When a person owning a business fails to pay off their debt, they can file for Bankruptcy. Bankruptcy is a legal process & kind of an option available to the Businesses.

Why Do Companies Go Bankrupt? (In Simple Words!)

Well, the real reason the Companies go bankrupt is that they fail to pay there debt/loans they owe to the bank, investors & other people involved. Its usually, because of not having a good business structure or even failing to maintain it can result in a loss in the business. & the business loan which was supposed to be paid from the profit of the business is just not paid (as one have faced a loss in the Business)! Hence in order to get the money back the banks take the businesses to file for Bankruptcy!


Why File For Bankruptcy?

If a Business/Organisation have a lot of debt & is unable to pay it off. As their Business may not generating enough money to pay off debt then the best option left for the Business is to file for Bankruptcy. As it is a legal procedure! It'll help the Business to pay off his/her debt.

(Continue Reading.... To Know How Is Bankruptcy Can Be Helpful For Business/Organisations....!)

Who Files For Bankruptcy?

Usually the banks take the Company's to file for bankruptcy as per of not getting the principle promised back even after crossing the deadline. Because banks would face a lot of loss if they do not recover the amount. But sometimes or actually a lot of time it've been noticed that many Businesses have filed for Bankruptcy themselves!

The Company is anyways handovered to the bank because the loan was on/for the Business/Company. Right?


Where & How Can A Company File For Bankruptcy?

To file for bankruptcy you need to go to a court but remember there ARE SOME ADDITIONAL CHARGES for filing & also if you're hiring a lawyer then his/her pay will also be taken out of your own personal expenses!


It literally depends upon of from which country do you/your business belongs & where are you filing for bankruptcy!
Here I've given the links to 3 websites which are of 3 different countries! You can check these websites & read the guidelines & procedures required to work accordingly. These all look after the "BANKRUPTCY LAW IN THEIR OWN COUNTRY" (check there guidelines & procedures!



Find your own Country's Bankruptcy Law!
If you belong from some other country & don't know that what is the bankruptcy law called in your country & what are the rules then simply search on google " What is (your country name)  Bankruptcy Code called? & After you get to know the name search ___________ rules!

Types Of Bankruptcy Chapters! (Basic!)

While one is filing for bankruptcy then he/she have to choose in between certain chapters depending on their Business structure & type. Different chapters works differently.

In the United States, the Chapters are: Chapter 7, Chapter 9, Chapter 11, Chapter 12, Chapter 13 & Chapter 15.

With Chapter 7 & Chapter 13 being the most common one's filed!

While in India, the Chapters are: Chapter 7, Chapter 13 & Chapter 11.

What Happens When A Company Goes Bankrupt?

Once a Company goes Bankrupt then as depending on the complexity of the case & the kind of chapter which have been filed. The Business may be liquidated! & in liquidation the assets of the company is sold and the money is obtained and returned to the people who owe their money! It can be Bond Holders OR NCD's Holders, Investors, etc. etc.

In simple words,
Liquidation basically means to sell all of the assets the business owns or any such thing which is owned by the Business/Organisation to pay off their debt!

But not all bankruptcies cases leads to Liquidation!

As I said different Chapters works differently!
Some chapters don't go for liquidation at all & instead they are more into restabling the Business.

In order to obtain the principle the Company can be liquidated, OR can request (as looked after) & also be appointed for solvency.
It is decided!
& if it's decided to pay off debt in Solvency then it may require more time while banks may face a loss!

I hope you liked gaining knowledge about Bankruptcy!

Thanks For Reading!
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