Bankruptcy ? Origin-situation-future-ahead | Finance Care Services

A much dreaded financial position of any player in the commercial scenario is ?bankruptcy?. The legal status of an individual or an entity on becoming insolvent is what we call bankruptcy. Bankruptcy originates from the Latin words banc us-bench and ruptus-broken which means a bank being broken or liquidated.

Situation of bankruptcy is usually a favorable position for creditors rather than the debtors. Creditors have chances of recovering some part of their entire amount of dues. However debtors also have the option to make arrangements for payment of their dues from accumulated value of assets by avoiding the huge burden of outstanding debts.

While discussing the term bankruptcy, we usually refer to it as insolvency. But we must know as per legal methodologies are concerned the two terms have a fine distinction. When a debtor, whether an individual or organization fails to pay their dues it is defined as insolvency. Situation of bankruptcy usually originates from legislative intervention by filing of petition either by the debtor or on behalf of the creditor.

It is commonly found that bankruptcy proceedings are initiated by debtors, where all the assets of the debtor are revalued and then used to pay a part of their outstanding dues. Once all the legal proceedings of bankruptcy are completed the debtor is freed from all his obligations. Bankruptcy laws and filing of it is in general beneficial for the economy as a whole, as it gives both the concerned party a chance- debtors are given time and legal assistance to pay off a part of their debts without being burdened by the entire amount. And the creditors have chances of debt recovery hence are saved form suffering total losses.

There is no such law prevalent in India regarding corporate bankruptcy however there is law dealing with individual bankruptcy from 1874 onwards. However Global system of law has different opinion and proceedings for the terms- bankruptcy, insolvency, liquidation and dissolution. The world during both pre and post industrial revolution phase has witnessed drastic situations of bankruptcy which had a tremendous negative impact on the world economy. Hence to bring an end to condition of bankruptcy and initiate a general development the then American president, Nixon brought about the nationalization of American banks from 1969 onwards, which acted as a remedial measure against bankruptcy. However one must be alert in identifying the nature of bankruptcy which at many times leads to well planned frauds.

The critical situation of bankruptcy should be dealt with great care by the people involved in the business sector. A man engaged in business must therefore keep his eyes and ears open for impending dangers that might lead to bankrupt condition. Situations like this can however be tackled by insurances and sound investment policies.

About Mac Mendiz

Mac Mendiz is the Editor to Finance Care Services and a guest columnist for many blogs that deals with finance. This entry was posted in Loan and tagged Bankruptcy. Bookmark the permalink.

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