To be bankrupt is the state or condition of a person, whether individual, partnership, corporation, or municipality that is unable to pay its debts. Formally, bankruptcy laws provide a debtor with the means to make use of the federal and/or state bankruptcy code for protection from creditors. Under the federal law of the United States, 11 United States Code Annotated codifies the rights of creditors and debtors when debtors are unable to pay their debts.

Numerous studies have looked at small-business failure rates over the past 30 years. According to the National Federation of Independent Business Education Foundation, 2.9 million businesses were launched in 1997, involving nearly 4 million people. Another 1 million people purchased 700,000 existing businesses that year.

The data showed that most new businesses ...

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