{"id":5418,"date":"2023-01-06T20:55:15","date_gmt":"2023-01-06T20:55:15","guid":{"rendered":"https:\/\/goldenpi.com\/blog\/?p=5418"},"modified":"2026-04-09T09:44:31","modified_gmt":"2026-04-09T09:44:31","slug":"what-to-understand-about-the-term-bankruptcy","status":"publish","type":"post","link":"https:\/\/goldenpi.com\/blog\/financial-matters\/what-to-understand-about-the-term-bankruptcy\/","title":{"rendered":"What to understand about the term &#8220;Bankruptcy&#8221;?"},"content":{"rendered":"<p>&nbsp;<\/p>\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_79_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/goldenpi.com\/blog\/financial-matters\/what-to-understand-about-the-term-bankruptcy\/#What_to_understand_about_the_term_%E2%80%9CBankruptcy%E2%80%9D\" >What to understand about the term &#8220;Bankruptcy&#8221;?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/goldenpi.com\/blog\/financial-matters\/what-to-understand-about-the-term-bankruptcy\/#The_dilemma_of_insolvency\" >The dilemma of insolvency\u00a0<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/goldenpi.com\/blog\/financial-matters\/what-to-understand-about-the-term-bankruptcy\/#Did_you_know_about_the_hidden_form_of_inflation\" >Did you know about the hidden form of inflation?<\/a><\/li><\/ul><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/goldenpi.com\/blog\/financial-matters\/what-to-understand-about-the-term-bankruptcy\/#The_term_Bankruptcy\" >The term Bankruptcy<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/goldenpi.com\/blog\/financial-matters\/what-to-understand-about-the-term-bankruptcy\/#A_look_into_deflation_scenario\" >A look into deflation scenario<\/a><\/li><\/ul><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/goldenpi.com\/blog\/financial-matters\/what-to-understand-about-the-term-bankruptcy\/#The_reasons_behind_the_bankruptcy\" >The reasons behind the bankruptcy<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/goldenpi.com\/blog\/financial-matters\/what-to-understand-about-the-term-bankruptcy\/#1_Mediocre_financial_management\" >1. Mediocre financial management<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/goldenpi.com\/blog\/financial-matters\/what-to-understand-about-the-term-bankruptcy\/#2_Natural_disasters_in_the_globe\" >2. Natural disasters in the globe\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/goldenpi.com\/blog\/financial-matters\/what-to-understand-about-the-term-bankruptcy\/#3_The_downturn_of_economic_conditions\" >3. The downturn of economic conditions\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/goldenpi.com\/blog\/financial-matters\/what-to-understand-about-the-term-bankruptcy\/#4_Conflict_with_the_creditors\" >4. Conflict with the creditors<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/goldenpi.com\/blog\/financial-matters\/what-to-understand-about-the-term-bankruptcy\/#Wrapping_note\" >Wrapping note\u00a0<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/goldenpi.com\/blog\/financial-matters\/what-to-understand-about-the-term-bankruptcy\/#How_does_inflation_affect_bond_price\" >How does inflation affect bond price?<\/a><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2><span class=\"ez-toc-section\" id=\"What_to_understand_about_the_term_%E2%80%9CBankruptcy%E2%80%9D\"><\/span><strong>What to understand about the term &#8220;Bankruptcy&#8221;?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Oftentimes we have heard the term \u201cBankruptcy\u201d when any of our investments failed due to the reason an issuer went bankrupt. Does this ring a bell? It does create a sense of threat, but what is Bankruptcy about? How does a company get into this phase?<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"The_dilemma_of_insolvency\"><\/span><strong>The dilemma of insolvency\u00a0<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Insolvency refers to a situation when a business entity is not capable of paying off its debt obligations.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Adding to this, Insolvency is just a situation and not the same as Bankruptcy. One can refer to Insolvency as a seedling that can cause Bankruptcy but it can be solved as well.\u00a0\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">In simpler terms if Insolvency remains for a shorter time, it can still be resolved but if longer then it will lead to Bankruptcy.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">So without Insolvency, there is no Bankruptcy but every Insolvency need not necessarily mean Bankruptcy all the time.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">For instance, a company not able to pay the loan for a month is insolvency and if manages to pay by other means then it\u2019s still in insolvency but if it is no longer in a condition to pay every month then it will file for Bankruptcy.\u00a0<\/span><\/p>\n<h4 style=\"text-align: center;\"><span class=\"ez-toc-section\" id=\"Did_you_know_about_the_hidden_form_of_inflation\"><\/span><strong><a href=\"https:\/\/goldenpi.com\/blog\/essentials\/did-you-know-about-the-hidden-form-of-inflation\/?utm_source=blog&amp;utm_medium=blog&amp;utm_bankruptcy\">Did you know about the hidden form of inflation?<\/a><\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n<h2><span class=\"ez-toc-section\" id=\"The_term_Bankruptcy\"><\/span><strong>The term Bankruptcy<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Having been in an Insolvency state, if the business still fails to pay off its debts for a longer time then either the company files for Bankruptcy or the creditors will.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">If the net assets minus the liabilities on the balance sheet of a business is negative, it is sure that the investors have a serious issue with the borrowers, but not as long as it is a startup. Because usually startups start their journey with negative numbers, it eventually leads to a positive number as they grow.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Bankruptcy refers to \u201c<\/span><i><span style=\"font-weight: 400;\">A legalized process where a business gets an opportunity to start fresh where the debt obligation is forgiven, also allowing the creditors to acquire some part of the payments from the liquidation of the business assets.<\/span><\/i><span style=\"font-weight: 400;\">\u201d<\/span><\/p>\n<p><span style=\"font-weight: 400;\">That happens at the risk of having a hit on the credit report for a long time which makes borrowing difficult in the future for a company undergoing Bankruptcy.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">As per Statista Report, 7,84,841 (The number also includes startups) companies shut their businesses as on the date June 2022 in India. It\u2019s a huge number to look into but how does it reach that phase?<\/span><\/p>\n<h4 style=\"text-align: center;\"><span class=\"ez-toc-section\" id=\"A_look_into_deflation_scenario\"><\/span><strong><a href=\"https:\/\/goldenpi.com\/blog\/essentials\/a-look-into-deflation-scenario\/?utm_source=blog&amp;utm_medium=blog&amp;utm_bankruptcy\">A look into deflation scenario<\/a><\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n<h2><span class=\"ez-toc-section\" id=\"The_reasons_behind_the_bankruptcy\"><\/span><strong>The reasons behind the bankruptcy<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">The firsthand culprit of the scenario could be due to a lack of financial management in the business that leads the business into a vulnerable situation of insolvency from which it continues to be in the trap of debt to keep the assets alive or it is followed by other causes on the list if it wasn\u2019t for that.<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"1_Mediocre_financial_management\"><\/span><strong>1. Mediocre financial management<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\"><a href=\"https:\/\/goldenpi.com\/blog\/fixed-income\/money-management-tips-to-improve-monthly-fixed-income\/\">Management<\/a> plays a crucial role in running a business. Without it, the operation has a massive hit, especially for a startup. It\u2019s a concern that they don\u2019t want to fall into a spiraling loop of having to lose the capital as it causes the need to have more debt than assets.\u00a0<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"2_Natural_disasters_in_the_globe\"><\/span><strong>2. Natural disasters in the globe\u00a0<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">The recent disaster of the Covid pandemic wasn&#8217;t an unforgettable thing to lose our memory of. Its impact on the economy still persists and the recovery is most expected. In the meantime, most of the running businesses were under the impact and had to shut down as the <a href=\"https:\/\/goldenpi.com\/blog\/market-view\/indian-debt-market-2025-trends-challenges-and-global-influence\/\">debt<\/a>-to-equity ratio increased.\u00a0<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"3_The_downturn_of_economic_conditions\"><\/span><strong>3. The downturn of economic conditions\u00a0<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">Whether it is a dilemma of inflation or deflation or none, the increased competition in the market puts down many in the race while only a few strategic giants win it. When we talk about competition, it refers to asking yourself how much of the market share you occupy. So with lesser shares, the vulnerability to lose existing customers is much higher.\u00a0<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"4_Conflict_with_the_creditors\"><\/span><strong>4. Conflict with the creditors<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">The fact is when we initially start the business with debt, managing finance is very crucial. There is no room for making unnecessary expenses as the debt comes with a repayment and interest clause to be paid timely.\u00a0 If not done timely, conflict is bound to happen with the creditors and is one of the reasons that might cause heavy distress if the creditors are not on good terms with your operations.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Listed ones are just a few to mention but there are many other reasons as well. Regardless of how we look into it, at all times the need to have good financial management along the run is quintessential.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Wrapping_note\"><\/span><strong>Wrapping note\u00a0<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">While for the <a href=\"https:\/\/goldenpi.com\/blog\/bond-news\/5-tax-filing-requirements-for-bond-investors\/\">investors<\/a> it\u2019s a fearful situation to be in the worst worst-case scenarios but there are liquidation processes that let the bondholders to still acquire the assets if they were invested in secured bonds.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">But for the companies, it&#8217;s a lesson to be careful about the financial management of the business at every step of the process to avoid spiraling into the trap of debt unless there is strategic planning involved to not fall under the undercapitalization event.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Although it is true that by filing for Bankruptcy a company can free itself from the debt obligations, as the creditor or the administration from the RBI committee will come up with a resolution plan, another way to do it is to undergo the liquidation process by releasing the assets.\u00a0<\/span><\/p>\n<h4 style=\"text-align: center;\"><span class=\"ez-toc-section\" id=\"How_does_inflation_affect_bond_price\"><\/span><strong><a href=\"https:\/\/goldenpi.com\/blog\/essentials\/how-does-inflation-affect-bond-price\/?utm_source=blog&amp;utm_medium=blog&amp;utm_bankruptcy\">How does inflation affect bond price?<\/a><\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n","protected":false},"excerpt":{"rendered":"<p>&nbsp; What to understand about the term &#8220;Bankruptcy&#8221;? Oftentimes we have heard the term \u201cBankruptcy\u201d when any of our investments failed due&hellip;<\/p>\n","protected":false},"author":4,"featured_media":12040,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"no","_lmt_disable":"","footnotes":""},"categories":[151],"tags":[],"class_list":["post-5418","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-financial-matters"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.6 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>What to understand about the term &quot;Bankruptcy&quot;? - GoldenPi | Blogs<\/title>\n<meta name=\"description\" content=\"What to understand about the term &quot;Bankruptcy&quot;?\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/goldenpi.com\/blog\/financial-matters\/what-to-understand-about-the-term-bankruptcy\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"What to understand about the term &quot;Bankruptcy&quot;? 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