Bankruptcy
Bankruptcy has a lot of technical definitions depending on where it is used. Basically, bankruptcy is a state wherein a person or a recognized entity by law is unable, one way or another, to meet its financial obligations. In other words, the entity’s liabilities have exceeded the assets of the same entity. In this case, the entity or business should file for bankruptcy in the federal bankruptcy court and that business would be known as a debtor.
After filing for business bankruptcy and it becomes a debtor, there are certain effects on its creditors who are categorized in such a way which gives priority to those who deserve it. First are the secured creditors. These are the creditors who have rights over the former’s property. Next are the unsecured creditors who are usually vendors such as credit card companies. Judgement creditors are those who have sued the debtor in the past and had won the case. Administrative claims are given to creditors such as lawyers and accountants; on the other hand super priority claims are given to creditors with higher priority due to special rulings. Last are post petition creditors. These are the creditors with an extended credit over the debtor.
Once a business bankruptcy is filed, it does not mean that all legal responsibilities and liabilities are eliminated, but some are. So, an entity who plans to file for bankruptcy should first consider what debts are dischargeable and which are not. This is an important to know so that the entity can evaluate if this is the right path to take.
