Voluntary Bankruptcy Definition

What is voluntary bankruptcy?

Voluntary bankruptcy is a type of bankruptcy or one insolvent The debtor petitions a court to declare bankruptcy because he is unable to repay his debts. Individuals and businesses can use this approach.

A simple definition of voluntary bankruptcy is simply when a debtor chooses to go to bankruptcy court rather than being forced to do so. A voluntary bankruptcy aims to create an orderly and fair settlement of the debtor’s obligations.

Key points to remember

  • Voluntary bankruptcy is a bankruptcy proceeding that a debtor initiates because they cannot repay their debt.
  • This type of bankruptcy is different from an involuntary bankruptcy, which is a creditor-initiated process.
  • Involuntary and technical are two other forms of bankruptcy.
  • During an involuntary bankruptcy, a creditor can compel a debtor to go to court in order to be paid.
  • Voluntary bankruptcy is more common than other forms of bankruptcy.

How Voluntary Bankruptcy Works

Voluntary bankruptcy is a bankruptcy procedure that a debtorwho knows they can’t meet the debt requirements of his creditorsinitiated in court.

Voluntary bankruptcy usually begins when and if a debtor finds no other solution to their dire financial situation. Voluntary bankruptcy filing differs from bankruptcy filing involuntary bankruptcywhich occurs when one or more creditors ask a court to declare the debtor insolvent (unable to pay).

Voluntary bankruptcy and other forms of bankruptcy

In addition to voluntary bankruptcy, other forms of bankruptcy exist, including involuntary bankruptcy and technical bankruptcy.

Bankruptcy filings vary from state to state, which may result in higher or lower filing fees, depending on the location of the filing.

Creditors seek involuntary bankruptcy from debtors when they will not be paid without bankruptcy proceedings and need a legal requirement to force the debtor to pay. A debtor must have reached a certain level of indebtedness before a creditor can file for involuntary bankruptcy. This level will vary depending on whether the debtor is an individual or a company.

In a technical bankruptcya person or company has defaulted on its financial obligations, but this has not been declared in court.

Voluntary bankruptcy and companies

When a company goes bankrupt, voluntarily or involuntarily, there is a specific series of events that occur for all stakeholders to receive the payments due. It starts with the distribution of assets to secured creditorswho have collateral lent to the company.

If they cannot obtain a market price for the security (which has likely depreciated over time), secured creditors may recover some of the balance of the company’s remaining liquid assets.

Secured creditors are followed by unsecured creditors— those who have loaned funds to the company (ie bondholders, employees to whom unpaid wages are owed, and the government, if taxes are owed). Preferred and common stockholders, in that order, receive any outstanding assets, if any remain.

The various types of bankruptcy a corporation can declare include Chapter 7 bankruptcy, which involves the liquidation of assets; Chapter 11, which deals with business reorganizations; and chapter 13, which is debt repayment with reduced debt pacts or terms of payment.

Of all the types of bankruptcy, voluntary bankruptcy is the most common.

Disclaimer: Curated and re-published here. We do not claim anything as we translated and re-published using Google translator. All ideas and images shared only for information purpose only. Ideas and information collected through Google re-written in accordance with guidelines and published. We strictly follow Google Webmaster guidelines. You can reach us @ chiefadmin@tipsclear.com. We resolve the issues within hour to keep the work on top priority.

Related Posts