Bankruptcy: When Resources Run Dry

Jan. 28, 2008 - PRLog -- However, the situation that is dreaded by most company is when it finds itself losing more money than gaining it. Coping from this problem is a big task for all top managers in a company.  But, thanks to bankruptcy law, many companies can push this escape button to bale the company from increasing debt. Bankruptcy laws are established to enable companies run and at the same time to save creditors from the debt incurred by the failing companies.

Years before the modern time, different civilization treat debtors in a variety of ways. The Greeks forced debtors into slavery and servitude depending on the gravity of debt. A debt will be paid in a period of servitude. However, there were instances when debtors will be handover to another lords in case that the old lord is the debtor of the new lord.  In this case, the new lord is harsher than the former master which would not even grant the freedom agreed by the former. While being a debtor is a humiliating circumstance in ancient Greeks, the Jews has better practice to their debtors.  Every 50 years, the Jews observed Jubilee wherein all debtors will be freed from their debts. In modern time, laws are made to save companies from the state of debt.  Closure of some companies has greater impact in economy especially in terms of employment generation and at the same time would greatly affect the creditors of their lost resources.  To save from further economic damages, bankruptcy laws are introduced.

Bankruptcy laws can save an individual or a corporation from total debt burdens.  There are two types of bankruptcy, the liquidation and the rehabilitation.  In liquidation, a debtor will allow all properties (except those which are personal necessities) to be taken by a trustee, an entity entrusted to custody the taken properties, until the properties will be sold with the proceeds paid to the creditors. In this type of bankruptcy, a company may stop from its existence.  On the other hand, the rehabilitation type of bankruptcy is the type that which gave the debtor a time to restructure itself allowing him to repay the debt through restructured scheme.  These cushions from a potential economic impact by allowing companies with large debt from recuperating and thus industry can still exist while on the state of debt.

While bankruptcy bales out companies from further ruin, it is also used as an escape goat from shrewd debtors.  Debtors who wanted to seek refuge through bankruptcy laws can engage into fraud acts. Fraud acts can includes the concealing of accounting records in the company. When the time this debtor will file the Liquidation bankruptcy, creditors will be cheated when there is few to gain from selling the declared properties.   Government are finding ways to curb this fraud act by compelling debtors to show their accurate books and letting debtors undergo counseling and consultation before filing bankruptcy.

Bankruptcy laws are promulgated to curb any potential threat to economy.  However, with the existence of fraud, it is one of the major challenges for these laws to combat it.  Like a double edge sword, it can be beneficial to companies seeking rehabilitation but it can also be abused by shrewd debtors.

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