Bankruptcy is a term that defines the degraded financial status of an organization or a business. When a firm is unable to pay the financial obligations of the company or is not able to pay its creditors, then the company files a petition in which all the outstanding assets and liabilities of a person are mentioned in the petition.
Types of Bankruptcy
Many small businesses file a petition for bankruptcy, as they cannot survive through the period of financial liability. In the past years, hardly three out of five organizations are still surviving in the market. Here are three types of bankruptcy that are mentioned in the law.
Adjustments of Debts With Regular Income
The debts are adjusted with the regular source of income. This type of bankruptcy is typically served for the individuals. It is served for the sole proprietorship, as these types of firms cannot vary from the owners. This petition is filed only when the goal of the sole proprietorships is a reorganisation. In the petition, the form of payment to the creditors is specifically mentioned.
This type of bankruptcy is chosen specifically for businesses that have no future and cannot survive. The primary purpose of this type of petition is liquidation. This type of bankruptcy is used by the sole owners, corporations, and partnerships. One files this petition when there is no future for the reconstruction of the business.
It is the best choice for businesses that have a chance to come back into the market in the future. Corporations and partnerships use this type of bankruptcy. The sole proprietorships, whose income level exceeds a specific limit, also uses this type of bankruptcy for reorganization. It is an essential step.
This article was written by Alla Tenina. Alla is one of the best tax attorneys in Los Angeles, California, and the founder of Tenina law. She has experience in bankruptcies, real estate planning, and complex tax matters. Click Here for more information. The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. Information on this website may not constitute the most up-to-date legal or other information. This website contains links to other third-party websites. Such links are only for the convenience of the reader, user or browser; the ABA and its members do not recommend or endorse the contents of the third-party sites.