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 to the extent possible.

There are two broad kinds of bankruptcy. In liquidation, the eligible assets of an individual or [Page 210]a corporation are turned over to a trustee, who liquidates them—that is, turns them to cash—and distributes the proceeds to the creditors. An individual who goes through liquidation bankruptcy is absolved of most, if not all, debts and is free to make a fresh start. A corporation that is liquidated goes out of business, with all its accessible assets used to satisfy creditors’ claims. The second kind ...