Bankruptcy is the legally determined inability to pay off debts when
they are due. The remaining assets of the individual or company may then be
liquidated and distributed by the court, or the debt may be reorganized or
managed so that the future payments can be made.
Bankruptcy is often declared by the individual or company that cannot meet it's debts.
In this case the bankrupt individual or company is looking for protection of their
remaining assets and time to renegotiate or refinance their debt and terms, so they
can eventually repay their debt and then "come out" of bankruptcy.
Bankruptcy also can be declared by the court in order to fairly distribute what assets
are left to the institutions that are owed.
Bankruptcy laws in the US have changed significantly in recent years. The main reason for
the changes was to try and eliminate fraud where large credit card debt and other debts
were purposely acquired with the intent of later claiming bankruptcy as protection against
losing a home or car. If you intend to claim bankruptcy, be sure to consult your
financial advisor and lawyer to fully understand the laws and the impact to your finances
and your financial future.
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