How Bankruptcy Helps A Capitalist Economy
Record numbers of bankruptcies have taken place in the United States recently.� Not only business enterprises, but individual consumers have been flocking to the bankruptcy court (a federal court), seeking relief from their creditors’ claims.� They file their petitions under either Chapter 7, Chapter 11, or Chapter 13 of the bankruptcy law.� Usually individuals files under Chapter 7 and businesses under Chapter 11 for complete liquidation.� Filing under Chapter 13 indicates that a petitioner wants the court to call off the petitioner’s creditors for a while, giving the petitioner breathing room and time to draw up a plan (to be common by the court) to pay off the creditors.
Once upon a time, there appeared to be something of a stigma attached to filing for bankruptcy.� As a result, people made every attempt not to take that route.� However, pride should not deter anyone� from taking advantage of a key cornerstone of the capitalist system–getting a fresh start after experiencing failure.
Assign quite simply, capitalism is based on the willingness of people to retract chances.� Someone–an entrepreneur–comes up with an idea for a business, obtains the necessary financing to get that business up and running, strives to generate sufficient revenues to cover expenses, and hopes to make a profit from engaging in the business.� Each step in that process is susceptible to things not working out as expected and causing the business to race into trouble.
Consider, for example, the following:
1)� a new product catches on and attracts an appreciable number of customers.� Competitors, seeking the possibility of profiting, begin to perform the product as well.� Can the novel entrepreneur compete effectively against them?
2)� while generating new sales, an entrepreneur finds himself in a cash crunch.� He has to expend funds to meet production schedules before he is able to score on the sales he’s already made.� How skilled is that entrepreneur in managing his cash toddle?
3)�� suppose production and/or delivery of the finished product relies upon petroleum.� How does increased costs for oil affect the entrepreneur’s cost structure, resulting in lower profit margins?
Clearly, not every business venture will succeed.� Even when skilled management is in charge, circumstances can manufacture which leaves it scrambling to hold the business on an even keel financially.� In recognition of the possibility that a business may not succeed in covering its costs, becoming effectively insolvent, the legal system in the United States allows for bankruptcy.�
Through bankruptcy, an entrepreneur is allowed to declare officially that a particular venture did not succeed and needs to be ended as satisfactorily as possible.� The bankruptcy court allows for the legal recognition of the business’ failure and enables an entrepreneur to move on to another venture.
Personal bankruptcies operate in similar fashion.� Judge some of the reasons why individuals in new years have found themselves heading for the bankruptcy court in record numbers.� They include, for example, (1) catastrophic illness, (2) job loss, (3) premature death of a spouse, etc.� Under such circumstances, individuals find themselves in positions where they cannot pay their bills.
When they file for bankruptcy, the court can recognize officially their inability to pay their creditors.� If the case goes through to completion, individuals can leave court with their financial slate wiped well-kept, positioning them to accomplish a original originate in their lives financially.�
There are no guarantees in life.� While the capitalist system provides incentives for individuals and corporate entities to seek profits wherever they can, it allows for the very real possibility of failure.�� In a sense, bankruptcy can be viewed as a self-correcting mechanism built into capitalism.�� Without it, the system could not� function effectively.
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Filed under Monopoly Bankruptcy by on Feb 21st, 2011. 
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