Individuals or corporate entities that are no longer capable of paying off their debts to their creditors are normally considered as bankrupt. Under the law, individuals or corporate entities that have lost the financial capacity to handle their financial obligations in favor of their creditors have the option of declaring bankruptcy.
Bankruptcy Law: Its Core Purpose
As provided for under the Bankruptcy Law, otherwise known as the Financial Rehabilitation and Insolvency Act of 2010, individuals or corporate entities who are under financial distress can seek for avenues wherein they are given the chance and are enabled to pay their debts under settlements that allow for extended time and without complications. While the law thus provides bankruptcy declaration as a legal means of protecting the interests of a financially distressed individual or corporate entity, it does not necessarily mean that a debtor is fully discharged from the financial obligation or debt in question.
Bankruptcy Law: A Creditor’s View
For creditors, however, a debtor’s bankruptcy declaration can mean a bitter pill to swallow. Debt settlements can usually mean that the money which a creditor have shelled out in favor of a hkdrs debtor will not easily be recovered and there is even the possibility that the original amount will be reduced. This translates to a loss of profit for the creditor, especially in cases where a settlement indicates that payments will be in the form of lots or properties that may have no enough value at all to be considered as profitable as against their initial financial outlay in favor of the debtor.
Now, who gets the most favor from Bankruptcy Law as currently practiced? Is it more in favor of a debtor or a creditor? Going back to history, bankruptcy or insolvency takes its roots from Islam. Early followers of the Qur’an practiced the teachings of the said book concerning insolvency. The Qur’an teachings states that an individual undergoing the hardships of insolvency should be allowed enough time to ease up until the ability to pay up the debt in question is regained. For a modern creditor, however, the reality of inflation and tax increases, among others, makes the bankruptcy law a disadvantage to deal with.
Debt Restructuring as an Alternative
Corporate entities and individual business owners, however, have other means at their disposal apart from bankruptcy and closure of operations. Under Debt Restructuring, a public or private company or individual business entity, and even sovereign entities, can be allowed to renegotiate or reduce the debt in question so that financial stability can be gradually restored through a rehabilitative process. This allows for continuous business operations which in turn ensure that future debt payments can be secured by the creditor concerned, albeit in reduced and extended terms.
The advantage of debt restructuring as against bankruptcy is that it is less expensive, with the main costs covering the time and effort spent in negotiating with creditors, vendors, bankers, and tax authorities. Furthermore, it is a process by which a financially distressed individual or company can gain recovery, and creditors can regain their investments or money.