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Bankruptcy Explained It is common knowledge that running a business requires unique attributes and management skills. The fact that one requires to carry out some research in order to run a successful business makes some people think of business like a science. Financial management is actually one of the areas of business that poses a huge challenge to businesses. Many businesses rely on getting goods on credit before actualizing sale and repaying for them. Meeting such obligations can however be challenging in situations where the business lacks funds. Bankruptcy is the term used to describe the state of a business failing to meet financial obligations to creditors. Bankruptcy is actually a legal term that defines such business and is therefore lawful. The import of the legality of bankruptcy is that even the judicial system of a country recognizes the fact that it is possible for a business to have insufficient funds for settling debts owed to creditors. The business that fails to pay creditors in time needs to file for bankruptcy also in good time. The task of filing for bankruptcy is usually solely in the hands of the debtor in most countries. After considerations, the court might approve this and issue a court order to affirm its decision. Many businesses that file for bankruptcy do not do it as a first option rather after other measures have been exhausted. It is however possible to find some businesses that file for bankruptcy deliberately to meet specific objectives. There is however fraud bankruptcy which is an illegal form of bankruptcy filed to meet illegal ends.
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Self imposed bankruptcy is usually referred to as strategic bankruptcy. Solvent companies usually undertake this type of bankruptcy purely to meet some goals that have been set by the business. Judicial courts however have to ascertain several issues before they can grant strategic bankruptcy applications. The court must therefore investigate to ensure that the application is not fraudulent. This is done by investigating assets and liabilities of the business in detail to see if some of them have been hidden for the purpose of filing for bankruptcy.
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Courts of law only grant prayers on bankruptcy if there are reasons beyond doubts that prove the inability of the business in question cannot pay creditors at that particular time. To be completely certain that there is no fraud intended, the court ensures that assets of the company are attached to the case in order to check if some could be liquidated to solve the financial problem at hand. Some companies in the world have used strategic bankruptcy as a stepping stone to catapult their business operations to greater heights, a fact that can be established by analyzing different bankruptcy statistics in different parts of the world.