Bankruptcy is a condition where an individual or an organization is unable to administer the payment of the debts that it owes to his or her creditors. When a person becomes bankrupt the property that they own and any property that they acquire during their period of bankruptcy is put under a trustee's control. The bankrupt person's property is then sold and the money from the sale is given to the people he owed on a pro rate basis - in percentage of the total debt. When someone applies to enter for bankruptcy, from that day onwards, the people who are owed are not supposed to recover any debts from them and they can only speak to his or her lawyers.
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There are two types of bankruptcies. The first is a deliberate action of bankruptcy where anyone who owes a debt of any amount to another person can apply for bankruptcy by filing the debtor's petition. If the petition is accepted, then the person is declared bankrupt. However, when it is suspected that the debtor is being dishonest in filing for bankruptcy, then there is court proceeding and the debtor is examined to establish the truth.
There is also the bankruptcy by compulsion or automatic bankruptcy. This is when a creditor makes a debtor bankrupt, and it is only possible if the debt amounts to $5000 or more. However, those who are owed may come together and make a debtor bankrupt. Involuntary bankruptcy is not quite common due to the expenses involved and the long time it takes before the case is heard. It is important to note that involuntary bankruptcy cannot be filed on an individual who does not have a business entity.
In the event that a debtor dies without leaving enough assets to offset his debts, then the people owed can file for bankruptcy if the money owed was more than $5000. The trustee will be required to distribute his assets to pay part or all of his debt. The administrator of the estate can also file for bankruptcy on behalf of the deceased if they are not able to settle the debts that he left behind. (Bankruptcy Act 1966 s 244)
In the case you are engaged in a partnership and a majority of your partners enter bankruptcy, then you should take action before you are declared bankrupt too. In a marriage, if your spouse files for bankruptcy, you are not affected, unless you are liable for the debt. When you are voluntarily filing for bankruptcy, you should be honest about your assets and their value, otherwise, you can be charged with bankruptcy fraud. Different countries have different laws on bankruptcy, and it is important that you speak to a lawyer and understand the laws before proceeding to enter into bankruptcy. Even in the United States, different states have different sets of bankruptcy laws.
There are restrictions that come with bankruptcy. For instance, there are some occupations that you may not be allowed to take. You are also not allowed to travel overseas once you have been declared bankrupt. Bankruptcy continues regardless of whether you have cleared the debts or not. It is until you are discharged that you cease being regarded as bankrupt. Usually, the discharge is done after three years unless the trustee makes an objection.
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