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    What Is Voluntary Bankruptcy?

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    Jonhmark Aniñon
    Voluntary bankruptcy is when a debtor willingly declares bankruptcy in court because they are unable to pay off their debts. It occurs when the debtor chooses to file for bankruptcy protection rather than being forced to do so by creditors through involuntary bankruptcy. Voluntary bankruptcy aims to create an orderly settlement of the debtor's financial obligations. It is more common than other forms of bankruptcy such as involuntary bankruptcy, which is initiated by creditors, or technical bankruptcy where a default has occurred but not been declared in court.

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    What Is Voluntary Bankruptcy?

    Uploaded by

    Jonhmark Aniñon
    45 views2 pages
    Voluntary bankruptcy is when a debtor willingly declares bankruptcy in court because they are unable to pay off their debts. It occurs when the debtor chooses to file for bankruptcy protection rather than being forced to do so by creditors through involuntary bankruptcy. Voluntary bankruptcy aims to create an orderly settlement of the debtor's financial obligations. It is more common than other forms of bankruptcy such as involuntary bankruptcy, which is initiated by creditors, or technical bankruptcy where a default has occurred but not been declared in court.

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    Voluntary Bankruptcy

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    Voluntary bankruptcy is when a debtor willingly declares bankruptcy in court because they are unable to pay off their debts. It occurs when the debtor chooses to file for bankruptcy protection rather than being forced to do so by creditors through involuntary bankruptcy. Voluntary bankruptcy aims to create an orderly settlement of the debtor's financial obligations. It is more common than other forms of bankruptcy such as involuntary bankruptcy, which is initiated by creditors, or technical bankruptcy where a default has occurred but not been declared in court.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    45 views2 pages

    What Is Voluntary Bankruptcy?

    Uploaded by

    Jonhmark Aniñon
    Voluntary bankruptcy is when a debtor willingly declares bankruptcy in court because they are unable to pay off their debts. It occurs when the debtor chooses to file for bankruptcy protection rather than being forced to do so by creditors through involuntary bankruptcy. Voluntary bankruptcy aims to create an orderly settlement of the debtor's financial obligations. It is more common than other forms of bankruptcy such as involuntary bankruptcy, which is initiated by creditors, or technical bankruptcy where a default has occurred but not been declared in court.

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    © All Rights Reserved
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    Download as docx, pdf, or txt
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    Voluntary Bankruptcy

    By 
    LUCAS DOWNEY
     
     
    Reviewed by 
    THOMAS J. CATALANO
     
     
    Updated Jan 28, 2021
    What Is Voluntary Bankruptcy?
    Voluntary bankruptcy is a type of bankruptcy where an insolvent debtor brings
    the petition to a court to declare bankruptcy because they are 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 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 involuntary bankruptcy, which occurs when one or more creditors
    petitions a court to judge the debtor as insolvent (unable to pay).

    Voluntary Bankruptcy and Other Forms of Bankruptcy


    In addition to voluntary bankruptcy, other forms of bankruptcy exist, including
    involuntary bankruptcy, and technical bankruptcy.

     
    Bankruptcy filings vary among states, which can lead to higher or lower filing
    fees, depending on the location of the filing.

    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 vary, 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 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 creditors can recoup some of the balance from the
    company’s remaining liquid assets.

    Secured creditors are followed by unsecured creditors—those who have loaned


    funds to the company (i.e., bondholders, employees 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 covenants or payment terms.1

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

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