Bankruptcy, Ethical Issues in

Bankruptcy occurs when an individual or a corporation that has insufficient assets to pay all debt obligations is subject to laws that provide some protection from creditors and permit an orderly distribution of assets to satisfy creditors' claims. There are two broad kinds of bankruptcy. In “liquidation” or “straight” bankruptcy, the assets of an individual or a corporation are turned over to a trustee, who liquidates them and distributes the proceeds to the creditors. An individual who goes through liquidation bankruptcy is absolved of many debts and is free to make a “fresh start.” A corporation that is liquidated goes out of business. The second kind is “reorganization” bankruptcy, in which a corporation obtains temporary relief from debt obligations while it seeks to reorganize and ...