It’s a bit like game over

You tried to save yourself, but you are on your last lifeline. And you get caught in the trap - and it’s game over. Bankruptcy is game over for a company or for a person. No matter how hard they tried, they were not able to repay their debts and have to shut down.

What is bankruptcy?

It’s actually more of a legal thing. A company goes bankrupt when it cannot pay its debts. The business files a petition for bankruptcy, declaring that it is unable to fulfill outstanding payments. Then, all of the assets of the business are evaluated and liquidated to pay part of the debt.

bankruptcy

And why would someone file bankruptcy?

It’s a relief. From debts, mostly. It allows for the debtors to release themselves from the debt and for the creditors to get (at least some) of their money back. It’s basically a new business, new me chance, although bankruptcy does stay in the files for a few years and will affect one’s risk profile. By filing bankruptcy, one hopes to eventually receive a discharge order, which is a bit of a bailout. It means that there’s no longer a legal requirement to pay outstanding debts. This however does not work for all kinds of debts - for example tax debts don’t qualify - and in any case, debtors can object the decision. Bankruptcy is a chance for a fresh start, and in many cases it can save a business or a person’s financial independence (although, not without leaving some scars since it stays on the record).

Different countries, different laws

Bankruptcy is filed by the company in whichever country the business is based in. Because of this, the laws surrounding bankruptcy are dealt with differently depending on  the jurisdiction. In the United States, a federal court deals with bankruptcy petitions. In other countries, like India, bankruptcy affects your credit rating, and it makes it difficult to start a new business. Since both people and businesses can go bankrupt, there are various types of bankruptcy depending on the situation. Not all want to close down, some  might opt for other solutions. This can mean a second chance for a business, as they can reorganize and cut costs.

Why will your future self thank you?

Firstly, just by reading the news you might realize just how often this word is thrown around, so it’s good to have an understanding of it. Bankruptcy is also something that individuals can encounter, so it is important to know what the implications and outcomes of this action are. Although it might seem like an extreme solution, it does reap  benefits in the end and with time it helps ease a very difficult situation. With that in mind, we hope you never have to deal with it.

Extra bits:

  1. Once upon a time, in 1974, Fedex was about to go bankrupt. But  it didn’t, as you might have just seen one of their trucks. And that is all thanks to a particularly risk averse founder, who took the last 5,000 dollars to Las Vegas and turned them into $32,000. Which have now become about $30 billion, considering how much Fedex is worth.

2. Operation Matterhorn: operation by the UK government to bring British holiday-makers home after Thomas Cook’s bankruptcy (and largest peacetime repatriation of British citizens ever)

3. 78%: percentage of NFL players going bankrupt 3 years after the end of their career. Which means also NFL players need some Bits of Stock™.