Definition of Bankruptcy

Bankruptcy is understood to be the legal situation in which a person, a company or an institution cannot meet the payments that it must make to its creditors, since these are higher than the economic resources it possesses (assets). The person, whether physical or legal, who cannot assume these payments is known as "failed" or "bankrupt."

When a company or an institution is legally declared bankrupt or bankrupt, it enters into bankruptcyor bankruptcy process to determine if the debtor's assets can be liquidated in order to meet their financial obligations.

The bankruptcy process

The bankruptcy process is regulated by the Commercial Code and determines that, after a business owner declares bankruptcy, the payments are automatically assigned to creditors. During this period, the debtor sells his assets to deal with the sales, so that the creditors cannot individually take legal action to collect the debts.

Finally, the debtor's assets are distributed among the various creditors until the debt is settled.

Do not hesitate to visit our accounting glossary for more information on all economic and accounting terms.

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