When a person or organization cannot repay what it owes to its creditors, it can legally declare bankruptcy (literally “broken table/bench” from the Latin, and called “put into administration” by the British) and be declared insolvent, removing its obligations to repay most of its creditors. Here’s an explanation of bankruptcy below.
Bankruptcy History
Centuries ago, if a man owed someone and couldn’t not pay back, he would be sold into debt slavery with his wife and children. Once he paid what he owed via the value of his and his family’s work, they could all be set free, but sometimes were not, despite legal protection. Around the same time, the Jewish people freed their debt slaves every 50 years in their year of Jubilee (Deuteronomy 25:17).
But the concept of bankruptcy having a different option besides slavery didn’t come into existence until 1542 in the United Kingdom. Other countries had their own methods of dealing with individuals who declared bankruptcy, including the death penalty. And not surprisingly, some countries throughout history have themselves declared bankruptcy.
Bankruptcy Today
In today’s modern era in which we live, through bankruptcy services and procedures, those who declare bankruptcy are given an opportunity to have their incurred debts forgiven and to start from scratch, hopefully with the lesson learned in mind, and more responsibility taken seriously. In the United States, there are very little requirements for someone declaring bankruptcy to be required to partake, although only partial bankruptcy may be approved. In Great Britain, someone declaring bankruptcy (insolvency) is still required to pay back some of what he owes, thus helping correct the behaviour that led to the need to declare bankruptcy in the first place.
In the US, there are four common provisions for those declaring bankruptcy. Here is a comparison of each:
Chapter 7
Chapter 11
Chapter 12
Chapter 13
Chapter 7, which is available for individuals and married couples, as well as a business partner or corporation, is the primary form of bankruptcy, resulting in all a consumer’s debts being wiped out completely in a voluntary manner.
Chapter 11 bankruptcy is less drastic than chapter 7, giving professional business owners a chance to reorganize their debts, rather than having them wiped out. This encourages a better managing of those debts, with better preferences and control.
Chapter 12 bankruptcy is for farmers who need a more simplified reorganization structure and are subject to greater debt restrictions.
Finally, chapter 13 bankruptcy allows individuals and married couples to repay their debts in instalments, based on what their income is expected to be.
Conclusion
All forms of bankruptcy should be seriously considered beforehand, and must be approved by the courts. Hopefully we can all avoid bankruptcy with greater care and obligations, and more serious responsibility. But it’s nice to know that the death penalty, which is a little tough, has been repealed and so it is not really a consequence of bankruptcy anymore.
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