Bankruptcy is something that every individual needs to understand. Having an understanding would enable us to avoid it and be aware when making decisions that could lead into financial difficulties, which in turn lead to bankruptcy. Having finished a twelve week course on new business venture and entrepreneurship, we must understand what could happen if things go terribly wrong.
Bankruptcy happens when you have a lot of debt and you have no chance to ever pay it off. In Australia, bankruptcy is governed by the Bankruptcy Act (Cth) 1966. It is designed to give insolvent people a fresh start, while being as fair as possible to the creditors. A third party is usually assigned to oversee the bankruptcy proceeding.
Whether it is a personal or business bankruptcy, the cause is usually unmanageable debts. The main sources of these debts are poor decision making, mismanagement, poor market condition, and personal problems. There are two types of debts, secured and unsecured debts. In bankruptcy settlement, secured debts are paid first.
Bankruptcy is the last resort. Alternatively, a debtor can enter a scheme of arrangement with creditors, which is called the Part X Arrangements. The three arrangements are composition, deed of assignment, and deed of arrangement. The arrangement can help the debtor avoid bankruptcy by creating a new way that is acceptable to both parties.
Bankruptcy or being bankrupt is not a crime. However, there are some ethical issues surrounding bankruptcy, which are very hard to clarify, as they are broader than the common conception right and wrong....