3 types of bankruptcies & how to recover from them

Liquidation of the business  

Bankruptcy may be the best choice when the business has no future. It’s usually referred to as liquidation. It’s usually used when the debts of the business are so overwhelming that restructuring them is not feasible. 

Liquidation bankruptcy usually means that the business is dissolved. In this type of bankruptcy, a trustee is appointed by the bankruptcy court to take possession of the assets of the business and distribute them among the creditors.  

 After the assets are distributed, and the trustee is paid, a sole proprietor receives a discharge at the end of the case. A discharge means that the owner of the business is released from any obligation for the debts. Partnerships and corporations don’t receive a discharge. 

Personal Bankruptcy  

It’s a reorganisation bankruptcy typically reserved for consumers, though it can be used for sole proprietorships. An individual or company files a repayment plan with the bankruptcy court detailing how they’re going to repay their debts. 

The amount you’ve to repay depends on how much you earn, how much you owe, and how much property you own. 

Voluntary sequestration 

Bankruptcy means that a debtor was either successfully sequestrated as a natural person or liquidated as a legal entity. All assets of the bankrupt debtor will be realised and the proceeds distributed amongst the creditors in terms of the Insolvency Act. This resolves the debtor of all debts and financial obligations that has accumulated, even if the debts haven’t been paid in full. 

This supervised division also allows the interests of all creditors to be treated with some measure of equality. After the commencement of bankruptcy proceedings, creditors may not seek to collect their debts outside of the proceedings. And the debtor isn’t allowed to transfer any property that forms part of their estate.