What Does It Mean When A Person or Business Files for Bankruptcy?

If you heard the phrase “file for bankruptcy” before, but you’ve never needed to file for bankruptcy, you may have wondered what filing for bankruptcy means. There are many other phrases used like “file bk”, “go bankrupt”, or “went bankrupt”. In context:

I heard that Mike went bankrupt.
I heard that the restaurant filed bk.
That restaurant is not doing too well. I heard they are going to go bankrupt.
That company filed bankruptcy the other day.

All of these phrases are referring to a similar thing. They are all essentially saying that the person or business has become insolvent and had to file a bankruptcy to erase or discharge their debts. In the case of a business, insolvency means that income of a business is not enough to sustain making payments to continue the operation of a business. The owners then had to file a bankruptcy on behalf of the business. In the case of an individual, insolvency means that the person did not have enough money to continue to pay their debts, and the person had to file a bankruptcy to discharge their debts.

When someone says “Mike went bankrupt”, there might actually be another, more casual, meaning. Sometimes people use this just to illustrate that someone went broke. It can be used to describe that someone no longer has any money, but maybe didn’t actually file a bankruptcy in court. For example:

My kid’s college tuition costs drove me bankrupt!

In this case, the speaker may not have actually filed a bankruptcy in a formal sense, but may be in a situation where they no longer have any expendable income.

When someone says they “filed for bankruptcy”, this usually actually refers to a court petition filing for bankruptcy like this example:

She filed for bankruptcy last month.

When a business files for bankruptcy protection, the business leader most likely has hired an attorney to file a bankruptcy petition to protect the company’s left over assets so that the company has the option to continue operating or liquidate assets. For example:

ABC Corporation has filed for bankruptcy protection and says they will shut down half of their stores.

The context in which the word bankruptcy is used will tell you what the actual use of bankruptcy means within that particular context, but a bankruptcy is commonly referring to either the lack of money/funds/resources or the actual filing of a bankruptcy petition.

When you file a bankruptcy petition in bankruptcy court, you are basically telling the court that you can no longer pay your outstanding debts and you would like to get the debts discharged under the bankruptcy code. The expected outcome of a bankruptcy filed would be these general goals:

1. To not have to pay back debt
2. To not have to surrender all of your assets

This is what bankruptcy means in its simplest terms. If you have questions about the details of how a bankruptcy can help you, contact Bankruptcy Law Professionals at 855 257-7671.