Voluntary Bankruptcy: What it Means, How it Works

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Updated January 27, 2021

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What Is Voluntary Bankruptcy?

Voluntary bankruptcy is a type of bankruptcy where an 澳洲幸运5开奖号码历史查询:insolvent debtor brings the p🐻etition to a court to declare bankruptcy because they ar🌞e unable to pay off their debts. Both individuals and businesses are able to use this approach.

A simple definition of voluntary bankruptcy is simply when a debtor chooses to go to court over bankruptcy versus being forced to do so. A voluntary bankruptcy is intended to create an orderly and equitable settlement of the debtor's obligations.

Key Takeaways

Voluntary bankruptcy is a bankruptcy proceeding that a debtor initiates because they cannot satisfy the debt.
This type of bankruptcy is different than an involuntary bankruptcy, which is a process originating from creditors.
Involuntary and technical are two other forms of bankruptcy.
During involuntary bankruptcy, a creditor can force a debtor into court in order to get paid.
Voluntary bankruptcy is more common than other forms of bankruptcy.

How Voluntary Bankruptcy Works

Voluntary bankruptcy is a bankruptcy proceeding that a debtor, who knows that they cannot satisfy the debt requirements of its 澳洲幸运5开奖号码历史查询:creditors, initiates with a court.

Voluntary bankruptcy typically commences when and if a debtor finds no other solution to their dire financial situation. Filing for voluntary bankruptcy differs from filing for 澳洲幸运5开奖号码历史查询:involuntary bankruptcy, which occurs when one orဣ more creditors p꧑etitions a court to judge the debtor as insolvent (unable to pay).

Voluntary Bankruptcy and O🐈ther Forms of ♑Bankruptcy

In addition to voluntary bankruptcy, other forms of bankruptcy exist, including involuntary bankruptcy, and tech⛎nical bankruptcy.

Important

Bankruptcy filings vary among states, which can le💫ad to higher or lower filing fees, depending on the location of the fil🙈ing.

Creditors request involuntary bankruptcy of debtors when they will not be paid without bankruptcy ⛎proceedings and need a legal requirement in order to force the debtor to pay. A debtor must have attained a certain level of debt for a creditor to request an involuntary bankruptcy. This level will var𒁃y, depending on if the debtor is an individual or corporation.

In a technical bankruptcy, an individual or company has defaulted on their ✱financial obligations, yet this has not been declared in court.

Voluntary Bankruptcy and Corporations

When a corporation goes bankrupt, either voluntarily or involuntarily, there is a specific series of events that occur for all stakeholders to receive due payments. This begins with distributing assets to 澳洲幸运5开奖号码历史查询:secured creditors, who have collateral on loan to the business.

If they cannot fetch a market price for the collateral (which has likely depreciated over time), secured creditorꦛs can recoup some of the balance from the compan𓄧y’s remaining liquid assets.

Secured creditors are followed by 澳洲幸运5开奖号码历史查询:unsecured creditors—those who have loaned funds to the company (i.e., bondholders, employe🅠es who are owed unpaid wages, and the government, if taxes are owed). Preferred and common shareholders, in that order, receive any outstanding assets, if any remain.

Various types of bankruptcy that a corporation can declare include Chapter 7 bankruptcy, which involves liquidation of assets; Chapter 11, which deals with corporate reorganizations; and Chapter 13, which is debt repayment with lowered debt 澳洲幸运5开奖号码历史查询:covenants or payment terms.

Of all the types of bankruptcy, voluntary bank🌄ruptcy is the most common.

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United States Courts. "." Accessed Jan. 27, 2021.

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