What is bankruptcy

Bankruptcy, also sometimes known as insolvency, is the state of a person or an organization which is unable to repay its debts back to the creditors. In some cases, the creditor may file a petition for the organization’s bankruptcy, thus making it a case of involuntary bankruptcy. This is done by the creditors in a bid to recover at least some part of their lost money, if not the entire sum. However, most bankruptcy cases are that of voluntary bankruptcy, i.e. the person or organization in debt files for bankruptcy themselves. It may be noted that creditors cannot file for involuntary bankruptcy against any individual debtor who is not running a business.

The word bankrupt is formed by coining the two ancient Latin words ‘bancus’, which refers to a table or a bench, and ruptus, which means ‘to break’. A bank primarily refers to a table or a bench (bancus), as they were the first public banks to be used. Bankers would usually make all their transactions and collect their money in such benches in many public places including fairs, markets etc. When a banker was unable to continue trading due to a lack of cash, he would break his table, thus letting the public know he was ‘bankrupt’.

When a debtor files for bankruptcy, his entire wealth and assets are measured and thereby evaluated. The value of all his assets is used in repaying the creditor a part of the outstanding debts. When a bankruptcy procedure is executed completely, the debts incurred by the debtor prior to filing for bankruptcy are waived for good.