A bankruptcy petition is an application of a person in debt to the court to declare his or her bankrupt status. It is a document containing the request of a debtor or his creditor to file for bankruptcy.
To file this petition, a person needs to prove to the court that he or she is unable to pay his debts. A statement of affairs detailing his financial status together with the bankruptcy petition form must be submitted to the court. Details that can be included are a frozen bank account and any business that has been closed due to financial difficulties. A fee will also have to be paid by the applicant.
The responsibility of the court is to determine whether the person’s liabilities are more than his assets. Another factor that will also be taken into consideration is the liabilities that may arise in the future.
Once the court approves the bankruptcy petition, the debtor’s properties and other assets are then sold off with the proceeds used to pay his creditors. Specifically, the amount gained from the sale of those assets is divided equally among the companies from whom the debtor owes money.
In the case of creditors, they can file a bankruptcy petition for the same reason which is not being able to pay your debts. Oftentimes, a certain amount needs to be met and the debt has to be unsecured in order for the court to approve the petition.
It should be understood that bankruptcy is a legal process and therefore, has to pass the court. Consequences of bankruptcy can be very serious the reason why those planning to file a petition need to think it over many times.