Bankruptcy is a legally declared state in which an individual or an organization is unable to pay creditors.
The individual may voluntarily file a petition in court or the creditors can take the debtor to court.
This is known as involuntary declaration of impairment of paying debts.
In most cases, this sate is normally initiated by the debtor.
Punishment for this state is believed to have originated from England and it was mainly for the benefit of the creditors as opposed to the benefit of the debtor.
The defaulter would loose all property to the creditor on top of being imprisoned.
In the past, various parts of the world had different opinions on bankruptcy.
In the west mainly in ancient Greece, debtors would be made slaves on the land of the creditor until they had worked enough to pay off their debts.
The whole household would also be subject to this slavery until the debt was cleared.
In the East, the debtor was subject to mandatory death penalty.
From a religious point of view, the Old Testament has it that those with debts are to be forgiven on every seventh year, also known as the Sabbath year.
In the United Kingdom, such petitions only apply to individuals and partnerships.
Companies and other corporations have different legal insolvency procedures namely liquidation and administration orders.
In the United States of America, such cases of failure to pay debts are mainly handled by the Federal jurisdiction which allows congress to enact uniform laws all over the states.
There are mainly six types of bankruptcy all of which fall under various chapters.
These will normally depend on the type of debtor, an individual, company or partnership.
These are chapters 7, 9, 11, 12, 13 and 15.
Chapter 7 is the easiest of all.