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Why do businesses file for bankruptcy?

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QsId 116
Asked by Isaac Thuku
Category Personal Question
Title Why do businesses file for bankruptcy?
 

What is bankruptcy?

Tags bankruptcy, business finance, losses, profits, entrepreneur
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Isaac ThukuA business may be forced file for bankruptcy if for one reason or other the entrepreneur is unable to meet their debt obligations.

What is bankruptcy?

Bankruptcy allows businesses to reduce or settle some or all of their debts under the safety of the bankruptcy court.

Bankruptcies can usually be divided into two categories, namely liquidation and reorganisation.

Liquidation

In liquidation the trustee for the bankruptcy may choose to sell or liquidate part of the debtor's assets to settle some of the debt. It is possible however to for the debtor to keep property that is exempt under the bankruptcy law.

Reorganisation

There are multiple categories of reorganisation bankruptcies that are available to entrepreneurs. Depending on the category one chooses, it is possible to keep all your assets but you have to pay monthly installments over a period of 3 to 5 years to settle all or some of your debt.

There a many hoops to be jumped and certain exceptions can be arranged which will determine what type of debt can be covered and who is allowed to file for a certain type of bankruptcy as well as what assets a debtor is allowed to keep or not.

2015-10-22

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