It is just as well to start by looking at what bankruptcy is. In simple terms, an individual or business entity is bankrupt when they can no longer pay their debts. It can take the form of being voluntary or involuntary.

Voluntary bankruptcy occurs when an individual or business declares that they can no longer meet their liabilities. Involuntary bankruptcy is caused by a creditor beginning a legal process to recover all or part of their money. It should be noted that this form of action can only be taken against businesses, and not against individuals not engaged in commercial activity.

The concept of modern bankruptcy is widely held to have its origins back in the sixteenth century. During the reign of England\’s King Henry VIII, a law was enacted in parliament giving a creditor license to seize the possessions of a trader who could not pay his debts. Additionally, the debtor could be placed in prison until his family had paid of any outstanding sums owed.

With the passing of time, the law became less harsh on the debtors. Early on in the nineteenth century, debtors were often allowed out of jail with their debts being discharged. However, creditors still held the upper hand as many traders continued to have their assets seized, and be imprisoned.

Since those early days, the law has evolved. The complexities of modern life, and business in particular, have necessitated many changes. Nowadays, there is a greater emphasis on the restructuring of businesses than on the elimination of insolvent parties. This is seen to be a good practice, not only in financial and business terms, but also for the well being of society as a whole.

It is probably fair to say that no two countries have exactly the same laws. Each one has developed at its own pace and within its own culture, giving rise to its current legal state. For this reason, it is not a good idea to make generalizations regarding what is and what is not permissible or acceptable when an entity or person falls on hard times. Suffice it to say that each country has its own mechanisms for dealing with such problems.

Nobody becomes bankrupt intentionally. It can happen through negligence, bad decision making, or just plain bad luck due to events outside an individual or entity\’s control. Furthermore, it can happen to anyone. While the legal penalties may not be as extreme as they were back in the sixteenth century, declaring oneself bankrupt is only something to be done as a last resort.

This is because in most societies bankruptcy carries a huge social stigma as it is publicly advertised. Furthermore, there are usually a great many restrictions placed upon a bankrupt until the bankruptcy has been officially discharged. To begin with, you lose control of your assets, are subject to future credit limitations and may well be barred from holding certain public posts. The strictures vary around the world.

However, on the positive side, a bankrupt person can enjoy a certain peace of mind. This comes about as he is now free from his debts. Furthermore, he can plan to make a new start in life.

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Category: Finances
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