What is Bankruptcy? - Explained

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Bankruptcy of Business

Business owners do start a business a to make profits and make some cash to the account. Simple speaking buying low and selling at a higher price with a margin which could be the profit of the business. For a business to become sustainable, it needs to keep continue making the momentum of sales day by day just like a living being having a hear beat. 

When some businesses are doing really well, some businesses don't. Not all businesses are getting success and making profits out. There could be many reasons behind a business for not to make profits. It could be bad management, now demand for the products which are selling by the business. It could be businesses are not making sales due to bad customer service and many more.

Business owner starts a business by investing a sort of capital initially. Typically this is a good amount of cash what the business owner invests into the business. It could be probably what the business owner has collected for the entire life and it could be the owner's savings from the job his or her.

After investing the amount of cash into the business the all the business owners doesn't tend to make a capital investment again if the business isn't performing well by a given time. If the business doesn't makes any amount of income or making less income to sustain the business and pay the rent, pay labor of the business, the business could go out of cash. Which means the business don't have money to pay the rent and pay for the labor. Because of that many business owners make the business go bankrupt.

Bankrupt is all about running out of cash. Banks won't show any interest to lend some money for a business which does have bad balance sheets. It's nearly impossible to sell the business to another party because the business is not getting successful.

If the business is a partnership or a sole proprietary business, the business owners will need to pay any amount of debts out to any party. 

Not all business owners understand the risk and do have the knowledge to manage the risk in the business. Due to reasons as such a business could be declared as bankrupt.

Bankruptcy of Individuals

While businesses are going bankrupt, individuals also could go bankrupt in different ways and different times. Each and every person needs to have a balanced income and expense to sustain throughout the life. There could be times where individuals take loans from a bank to buy a house, buy a car and etc... It's the borrowing person's responsibility to make the repayment to the bank with the required interest to the bank.

Many individuals do have an understanding with regards to the income and expenses and there are some individuals who doesn't have any idea about balancing income and expenses. if a person is doing a job and he or she is making 1000USD per week which means his or her weekly spending should be equal or less than 1000USD which is technically his or her's income. Anything above that 1000USD means that person do have a bag expense habit. 

There are times where a person loosing a job a getting stuck of paying rent of the house, lease of the car and credit card bill. If that person wasn't able to find a job immediately which can match the basic and mandatory expenses of him or her, the bank won't like to lend money to that person and the house owner will not like to rent the house that person and that person could ended up in road. At a state with all the frustration a human could get to a state where he or she can't make a way to earn good amount of cash. At a moment like that the person could be marked as bankrupt person or declare bankruptcy.

Getting bankrupt could affect the credit rating of the individual and it could be nearly impossible to keep the heads up after going bankrupt. Managing wealth, managing income and expenses could be the only way to not to become bankrupt.