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
- Bankruptcies can significantly impact a company's credit rating, making it harder to secure future trade credit.
- Filing for bankruptcy can allow companies to restructure their debts and continue operations under certain conditions.
- There are different types of bankruptcies, such as Chapter 7 (liquidation) and Chapter 11 (reorganization) in the U.S.
- The process can affect receivables management since creditors may only receive partial payments or none at all.
- 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?
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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.
