Bankruptcy means an official declaration of economic failure or mutilation of ability of a person or company to pay their creditors. A bankruptcy petition may be filed against a debtor. Sometimes creditors file this kind of “involuntary bankruptcy” petition to recover their due payment. In most of the cases, however, the debtor, individual or organization, initiates the economic collapse, known as the “voluntary bankruptcy”.
Chapter 13 bankruptcy is a method employed by consumers who have debts and are not in a position to pay them back. It is a way for them to restore their financial status and get back to a zero balance.
In my work with clients I read a lot of legal documents and a great many of those documents contain language such as: “If XYZ becomes insolvent, bankrupt or is placed in receivership…” Many people, including many business owners and executives, believe that the terms “insolvent,” “bankrupt” and “in receivership” have pretty much the same meaning, but that is not truly the case. While the words are often used interchangeably, they can mean very different things. This is important for business leaders to realize, because the legal interpretation of clauses such as the one above may be much broader than they realize.