Bankruptcies

Definition

Bankruptcies occur when individuals or businesses are legally declared unable to meet their debt obligations. This legal process helps manage the insolvency and provides a chance for debt restructuring or asset liquidation.

5 Must Know Facts For Your Next Test

1. Bankruptcies can significantly impact a company's credit rating, making it harder to secure future trade credit.
2. Filing for bankruptcy can allow companies to restructure their debts and continue operations under certain conditions.
3. There are different types of bankruptcies, such as Chapter 7 (liquidation) and Chapter 11 (reorganization) in the U.S.
4. The process can affect receivables management since creditors may only receive partial payments or none at all.
5. Bankruptcy laws vary by country, affecting how businesses handle insolvency and protect creditors' rights.

Review Questions

• What types of bankruptcies might a business file for in the U.S., and what are the key differences?
• How does filing for bankruptcy impact a company's ability to secure trade credit?
• In what ways might bankruptcies affect receivables management?

Related terms

Insolvency: The state of being unable to pay debts owed.

Trade Credit: A form of short-term financing where suppliers allow customers to purchase goods now and pay later.

Working Capital: The difference between a company’s current assets and current liabilities, indicating its short-term financial health.