What is "Bankruptcy" meaning?

Bankruptcy is a legal term that describes the state of a business or individual who cannot pay back their debts. It’s a formal process that provides the debtor protection from creditors, allowing for either the restructuring of debts or the liquidation of assets to satisfy obligations. It is commonly used in both corporate and personal finance contexts.

Example

"The startup filed for bankruptcy after failing to secure the necessary funding, allowing the company to reorganize and restructure its debts under court supervision."

How is "Bankruptcy" used in business?

In business, bankruptcy is used when a company is in severe financial distress and unable to meet its financial obligations. Businesses file for bankruptcy to either reorganize their debts through Chapter 11 or liquidate assets through Chapter 7. This process provides the company with a fresh start, although it can also damage their brand and reputation.

Pro Tip

If you’re a business owner, consider bankruptcy only after exploring alternatives like restructuring, selling assets, or negotiating with creditors. Bankruptcy should be seen as a last resort.

Related Terms

Insolvency, Debt Restructuring, Liquidation, Creditors