Bankruptcy and Liquidation

What is company bankruptcy?

Becoming bankrupt means you’re declared by law to be unable to repay your debts. Most of your
debts could be eliminated in this way, and debt collectors and creditors will stop contacting you.
Bankruptcy is seen as an option of last resort, and it’s typically used for dealing with debt that
can’t be repaid.
You can become bankrupt in two ways: by voluntarily filing for bankruptcy yourself or through
your creditors applying for you to become bankrupt. Once you are bankrupt, a registered
bankruptcy trustee takes control of most of your finances and tries to pay off your debts. They
have the power to sell your assets and to take any income earned over a certain limit.
Bankruptcy lasts for three years. During this time, you will have limits on what you can do, such
as restrictions on running companies and work in certain professions. Bankruptcy is recorded on
your credit report for up to seven years and on the National Personal Insolvency Index
permanently. And since it can have serious implications for your financial future, you should
consider bankruptcy only if you have no other better option.

What is business liquidation?

In contrast, business liquidation applies only to companies. If your company is unable to pay its
debts and goes into liquidation, a liquidator is appointed and the business ceases operations.
Typically, company assets are sold or realized to repay debts. Once that’s done, the company is
shut down.
Liquidation can be voluntary or involuntary . It can be ordered by a court or initiated by creditors
or members. Liquidation could be initiated if the company wants to end its operations. The
outcomes are typically the same for both types of liquidation, but they differ in the way they’re
initiated.
Alternatives or preceding stages to liquidation could be receivership or voluntary administration.
These insolvency processes could help companies in trouble without the winding up and closing
down that liquidation involves.

Key differences between Bankruptcy and liquidation

The key difference is bankruptcy is only for individuals and liquidation is only for businesses.

Other important differences include the following.

State vs process – Bankruptcy is a state during which the individual is considered to be unable
to repay his or her debts. Liquidation is a process that distributes a company’s assets and shuts
down the company permanently.
Permanent outcome – While both bankruptcy and liquidation are temporary processes,
liquidation results in a permanent closing down of the business. The company is permanently
closed down while bankruptcy lasts only three years.
Fresh start – While bankruptcy can give an individual a new start with a financial reboot,
liquidation results in the company shutting down so it can’t give businesses the same opportunity
to reboot.