The term bankruptcy expresses the economic bankruptcy that affects an individual as well as a company or even a nation. The origin of this word is quite curious as it comes from the Italian expression “banca rotta”, a concept that emerged in the 16th century due to the bankers’ custom of breaking the bank, symbolizing bankruptcy and exiting the business . Next, we will present a schematic idea of the expression bankruptcy in relation to the three types mentioned.
Economic bankruptcy in the personal field
A person or a family finds itself in bankruptcy when they cannot meet their financial obligations normally. This circumstance can occur due to lack of income , benefits, debts or simply due to poor financial management . In any case, the expenses are greater than the benefits and in this juncture it is legally possible to determine the bankruptcy of a person; knowing that this is regulated by the legislation of each country.
The main consequence is the lack of authorization to manage their own assets and normally these bankrupt creditors have to resign in order to recover the money again.
The bankruptcy of a company
A company can declare itself bankrupt due to poor financial management or due to causes related to the market situation. The purpose of this declaration is to avoid paying debts to creditors for a period established by law. This situation presents a series of advantages and disadvantages to the company. The main advantage is the possibility to reorganize the entity’s finances, although it is also useful to prevent the hypothetical demand from a creditor. Regarding the disadvantages, there are several aspects: there are a number of associated expenses, as well as it can affect the credit possibilities in the future.
Finance experts recommend avoiding filing bankruptcy and seeking new alternatives, for example, re-negotiating debts.
the breaking of a nation
A country declares itself bankrupt when it cannot pay the interest on its debts and when no entity is willing to lend it money. This causes a lack of liquidity and prevents them from assuming their responsibilities (payment of salaries, pensions and the disappearance of basic public services). The financial ruin of a nation is a phenomenon that has occurred in the recent history of countries like Ukraine, Argentina, Pakistan, among others.
The economic crisis usually has devastating consequences for a country’s economy:
– The need to resort to the economic rescue of foreign investors or any institution;
– Usually there is a noticeable increase in inflation;
– There is a decrease in investments , lack of credit and, definitely, a financial instability that affects the whole of economic activity .