bankruptcy
Definition
Bankruptcy is a legal process that gives people or businesses who can no longer pay their debts a way to either wipe those debts out or create a manageable plan to repay them under court supervision. A federal court steps in to sort out what you owe, what you own, and how to fairly deal with the people you owe money to. It can give you a fresh financial start, but it comes with real consequences that follow you for years.
Example
If your business racked up $200,000 in debt it cannot repay, you could file for bankruptcy and the court might allow you to restructure those payments into something affordable, or in some cases discharge certain debts entirely so creditors can no longer chase you for them.
Watch Out
Bankruptcy stays on your credit report for 7 to 10 years, which can make it very difficult to get loans, sign leases, or even open new vendor accounts for your business down the road.
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This definition is for informational purposes only and does not constitute legal advice. Please consult with a licensed attorney for legal guidance.