Bankruptcy & Insolvency
Bankruptcy and Insolvency law deals with the formal condition of an insolvent person being declared bankrupt under law. The legal effect of bankruptcy is to divert most of the debtor’s assets and debts to the administration of a third person, sometimes called a “trustee in bankruptcy,” from which outstanding debts are paid pro rata. Bankruptcy allows the debtor a statutory period during which his or her commercial and financial affairs are administered under the strict supervision of a trustee.
Bankruptcy usually involves the removal of several special legal rights such as the right to sit on a board of directors or, for some professions, such as lawyers or judges, to practice. Commercial organizations usually add other non-legal burdens upon bankrupts such as the refusal of credit. Bankruptcy benefits the debtor by erasing most debts even if they were not satisfied by the sale of the debtor’s assets.
However, before one may become bankrupt, they must first be declared insolvent, or unable to pay his or her debts as they become due