Bankruptcy – this legal term details a procedure, which is also known in many jurisdictions as “insolvency”. The formal condition of an insolvent corporate body being declared bankrupt under the provisions of the local Commercial Law. In many jurisdictions, only corporate bodies may declare bankruptcy, but physical individuals are not allowed to. The legal effect is to divert most of the debtor’s assets and debts to the administration of a third person. Usually, this is a bailiff or trusted assignee, depending on the local legislation. Who pays any outstanding debts towards their creditors.
Bankruptcy leads the debtor towards a statutory period during which his or her commercial and financial affairs are ended, considering the future liquidation. Commercial organizations usually add other non-legal burdens upon bankrupts such as the refusal of credit. The duration of “bankruptcy” status varies in the different legal systems. But it does have the benefit of erasing most debts even if they were not cleared by the sale of the debtor’s assets, that is called also “Bankruptcy estate”