Business, Legal & Accounting Glossary
(of a person or organization) declared in law unable to pay outstanding debts.
To be bankrupt is to be insolvent, or in bankruptcy.
In law, bankruptcy is the term for a state of insolvency declared by a court, but in common usage, bankrupt status could be either de facto or de jure. A firm can become bankrupt even with considerable profit through improper asset-liability management, or not having the cash flow to pay bills when they come due. Thus, an accountant would say that the number one reason a business would become bankrupt is a lack of cash. An individual can be bankrupt, too. A bankrupt individual can discharge debts in Chapter 7 bankruptcy, or repay the debts (but keep all assets) in a Chapter 13 bankruptcy. Chapter 7 also applies for a bankrupt company that is liquidating. A bankrupt company that is going to restructure its debts and attempt to continue as a going concern would instead use either Chapter 10 or Chapter 11. Under Chapter 10, a bankrupt company reorganizes with a court-appointed manager; under Chapter 11, the existing management is retained during reorganization.
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This glossary post was last updated: 15th February, 2020 | 3 Views.