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The Economy: 14. Bankruptcy and Insolvency

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Jan 30, 2023
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INSIGHT

Bankruptcy Basics

  • Bankruptcy is a legal process for individuals and small traders when income consistently falls short of expenses.
  • It allows debt wipe-out but restricts future borrowing and impacts credit scores.
INSIGHT

Business Insolvency

  • Businesses use the term "insolvency" instead of bankruptcy.
  • The legal process differs, with fewer options for complete debt relief.
INSIGHT

Insolvency Types

  • Cash flow insolvency occurs when short-term cash inflow is insufficient to cover immediate debts, even if assets exist.
  • Balance sheet insolvency arises when total liabilities significantly exceed total assets.
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