In the today’s business world, more and more transactions are done on credit. Credit is when one party owes a payment to another party for goods or services that were supplied. Thus, generally there is a time period in which the credit should be settled. Bankruptcy occurs when an individual or an organization legally pronounce their inability to settle to pay the creditors.

Bankruptcy can be declared in two ways. The creditors have an option to declare bankruptcy against the debtor, which is known as involuntary bankruptcy in order to attempt to recover at least a portion of their credit. However, the majority of the declared bankruptcies are voluntary bankruptcy which is filed by the debtor. Presently, rather than eliminating the insolvent businesses, the laws and regulations regarding bankruptcy focus mainly on remodeling the financial model of the organization in order to provide the debtor a chance to restore the business.

It is important to know that bankruptcy fraud is a serious crime. Although this may occur in many forms, the criminal acts which are declared by law are asset concealment, destruction or concealment of important financial documents, claims that are fraudulent, conflicts of interest, false declarations and fee fixing. In addition, providing false information for bankruptcy forms is often perceived as perjury. However, bankruptcy fraud should be clearly distinguished from strategic bankruptcy where a solvent company declares bankruptcy to receive some sort of gain by using bankruptcy laws. Although this can be sometimes seen as a rather successful business strategy, in certain instances, it could work against the initial claimer.
Once a bankruptcy claim has been filed, all the assets belonging to the debtor should be declared, even though the debtor does not believe the item to have a net value. As the creditors decide the value of the assets and not the debtor when a bankruptcy claim is filed, the asset declaration should be done with care. The failure to disclose certain assets could result in heavy legal action against the particular debtor.

There are certain very famous bankruptcy incidents in the United States where billions of dollars were involved. The single largest bankruptcy incident in the United States was the bankruptcy declaration of Lehman Brothers Holdings Inc. on September 15, 2008 when over $639 billion were declared in assets. Perhaps the most famous incident would be the Enron Corp. bankruptcy where $ 65 billion was involved and key people of the corporation was sentenced to prison for felony charges.

Bankruptcy laws and regulations exist to provide the creditors as well as the debtors some form of protection. It is indeed a vital tool in a global economy.