A couple considerations on voluntary and involuntary bankruptcy

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Post on 21-Jan-2018



Economy & Finance

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  1. 1. A couple considerations on voluntary and involuntary bankruptcy By Suzzanne UhlandImage courtesy of Matthias Zomer at Pexels.com
  2. 2. A curious issue regarding bankruptcy cases in our days is that, precisely, it is a matter decided deliberately by those who file for it. The best way to interpret this phenomenon is that behind the requests for protection there is usually a series of deliberate actions to start a bankruptcy process. Of course, that's not how it should be, but it is what it is. It could be seen from another perspective, of course: The way in which people relate to the very concept of bankruptcy has to do with the romantic idea of consumers to start from scratch in the land of freedom.
  3. 3. Postmodernists like Zygmunt Bauman would say that this is evidence of 'liquid modernity,' in which there is a great concern for fixed processes which remain immutable for a long time, as it used to be in the past. People today are not in favor of final decisions because they are accustomed to the frenetic pace of this era of much faster changes. A vast majority of people seem to be sufficiently committed to nothing, not even to their businesses. In that sense, voluntary bankruptcy is a phenomenon of liquid modernity; and those who consider it as an option, think that the purpose of the very concept of bankruptcy is to open new windows of opportunity to get ahead.
  4. 4. Now, it is still possible to talk about bankruptcies that have not been decided in advance. Moreover, it is possible to speak of involuntary bankruptcies in which the creditors are the ones behind the process. Even to complicate the picture a bit more, it is possible to speak of bankruptcy proceedings initiated against debtors, and not even by their creditors, but by third parties. The natural question behind this question is why this happens, and perhaps the answer is more complex than the question because it is rooted in sociological problems that, in turn, would extend the subject of this post much more.
  5. 5. These strange cases are not very common, of course. However, it is important to delve into them, especially in terms of the pros and cons that imply on the fly for those who consider them as a viable option. The first thing to say about this matter is that there are a number of conditions for a bankruptcy petition of this nature, and that they must be carefully observed. Read also: How to invest in 2018 and avoid bankruptcy, by Suzzanne Uhland
  6. 6. First, the legal mechanisms that have been arranged to regulate these figures are found in the bankruptcy code, between the seventh and eleventh chapters. Secondly, the process of involuntary bankruptcy can be initiated practically against anyone (this includes, of course, any business), except in cases indicated by law, related to matters of protectionist interest of the State for economic policy issues. On the other hand, if the creditors exceed a dozen, at least three of them must be included in the involuntary bankruptcy petition. In the same way, these types of requests are only viable in case the debtor is in default of paying his or her obligations.
  7. 7. The difference between voluntary and involuntary bankruptcy processes are presented in the way they legally start. From the legal point of view, the bankruptcy will be considered as voluntary or involuntary depending on who starts the process: The debtor or the creditors. Usually, it is the debtor who decides to declare bankruptcy. This happens when it is foreseen that in the months following his or her obligations in default, he or she will not be able to face the regular or extraordinary debts of the business, and, therefore, decides to declare bankruptcy.
  8. 8. As mentioned above, the idea of this is to close a negative stage, so that the entrepreneur can start from scratch, without debts. To apply for voluntary bankruptcy, it is necessary that neither the debtor nor a creditor has filed for bankruptcy before the courts, and that the debtor requesting the voluntary liquidation is in a notorious insolvency state. All this leads us to think about why business is breaking at such a vertiginous pace lately. The truth is that most entrepreneurs and owners of small businesses find the causes mainly outside the company and especially in the political-economic environment.
  9. 9. In general, beyond the policies of the current government, the swings of the economy of the region or the motivations of the new generations of employees, there is something that causes some companies to fail but others continue to grow and even become in large companies. The common problem that is observed in small businesses is the lack of professionalization. This makes it necessary a more serious approach of the company to achieve the quality of the product and service it offers, standardization in the operations, an improvement in the management of the employees, greater control of the inputs and their suppliers, planning of the
  10. 10. actions , analysis of the results and finally, a review of the leadership of the owners. Unlike what happens in large companies, which have directories and various advisors, the survival of the company is strongly related to the owner's knowledge. Recommended: Voluntary and Involuntary, Individual and Joint Bankruptcy Cases


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