What is bankruptcy?

Bankruptcy refers to when a court judges that a debtor is unable to make the payments owed to a creditor.
It happens when the borrower has no way to pay off the debt to the creditor and in this case the court declares the person bankrupt.
How bankrupts are treated can affect economic growth. If bankrupts are punished too severely, would-be entrepreneurs may be discouraged from taking the financial risks needed to make the most of their ideas.

Bankruptcy is a legal procedure for liquidating a business or property owned by an individual, which can’t fully pay it’s debts out of its current assets.

It can be brought upon itself by an insolvent debtor(Voluntary Bankruptcy) or it can be forced on court order on creditor’s petition (Involuntary Bankruptcy).

Main objectives of Bankruptcy are ::

  1. Fair settlement of the legal claims of the creditors through equitable distribution of debtor’s assets.
  2. To provide the debtor an opportunity for fresh start.