The term bankrupt which offers legal acknowledgement of collapse of a personage, or an association. Such Bankruptcy cases are influenced under special bankruptcy courts. The phenomenon, process and the conditions applied as well are different in each and every state and are dependent on several elements. It acts as the method for circumstances where neither the outstanding debt constraints can be fulfilled, nor an agreement can be bargained with the creditors. No matter what, one must consider the “costs” linked as well.
Types of Bankruptcy are as under:
- Depending on the insolvent unit, bankruptcy is classified as individual.
- Personal and business.
- Mutual bankruptcy.
- Accordingly if name recommends, when an individual files for bankruptcy, it is called as individual.
- Individual bankruptcy.
- Business organizations can search for protection under business/corporate bankruptcy.
Pros of Bankruptcy:
Under definite circumstances bankruptcy is the best way to deal with financial crisis and insolvency issues. Some of the benefits are as follows:
►►Keeps continuity on Debt Recovery Actions:
The creditors are already ensured that their pending dues will get a clearance and their interests are secured. As a resultant of this surety and the orders from bankruptcy court together make up new recovery actions against the debtor which can’t began with certain exceptions. If the creditor litigations are available, they will be blocked.
The court can order to cancel some of the debt obligations. Once a debt is discharged or canceled, unsecured creditors are unable to initiate any kind of recovery action for that particular debt. Once the proceedings are over, the debt slate is clean, and the debtor can newly commence with activities to earn a living.
►►Protection of Property:
Individuals have the option to secure some of their assets; namely a motor vehicle, household goods and furnishings, jewelry (worth a specific amount), a part of equity in the house, etc., from being liquidated and used as means for debt repayment. For debtors who have obtained unsecured loans, such exemption will prevent creditors from claiming rights on all the assets of the debtor. Individuals can avoid foreclosures, and figure out alternative means for repayment. If you are suffering for bankruptcy then consider some bankruptcy help.
Corporate – for which long-term cash flows/revenues are expected – benefit by getting a chance to retain their business, reorganize their debt payment structure, and gain extensions for repayment of dues. Thus, their business need not be wound up for paying debts. Proprietors can seek protection of their personal assets, in case their business venture fails, and has to be wound up.
The Bankruptcy court issues orders for a stay on any proceedings pertaining to tax payments, against the individual or the organization.
In general, if a debt is discharged or cancelled, the cancelled amount is considered as a taxable income creating a tax liability. But, the debt amount discharged under bankruptcy proceedings is tax-free.