Definition
The term act of bankruptcy refers to an action taken by a debtor that becomes the foundation for a creditor to file a petition in court to declare the debtor bankrupt. While there are many acts of bankruptcy that can become the basis for this filing; in some jurisdictions, it can be as simple as failure to pay an obligation on the date it is due.
Explanation
When a debtor takes certain actions, a creditor may file a petition in court to declare the debtor bankrupt. Creditors do this to protect their claims against the debtor's assets, since a bankruptcy proceeding may result in their sale. The funds received from the liquidation of the debtors assets can then be used to repay the money owed creditors.
In some jurisdictions, simply failing to repay a debt obligation on time constitutes an act of bankruptcy. Additional actions taken by a debtor that may be found to be the basis for an act of bankruptcy include:
Attempting to hide assets from creditors.
Providing payment to some creditors, but failing to repay another.
Assigning, selling, gifting, or otherwise transferring assets to another party to protect them from creditors.
Providing notice to creditors that they intend to suspend, or have suspended, repayment of debt owed and due.
Any action that may be reasonably interpreted as attempting to defraud creditors.
Related Terms
The financial accounting term current liabilities are generally defined as any debts that must be paid within one year or one operating cycle, whichever is longer. Current liabilities are a subcategory of liabilities, which appear on a company's balance sheet.
Moneyzine EditorJanuary 12th, 2024
The financial accounting term long term debt is defined as the loans and other debt obligations of a business that are payable in twelve months or longer. Long term debt appears in the liabilities section of a company's balance sheet.Moneyzine EditorJanuary 23rd, 2024- The financial accounting term promissory note is used to describe a contract whereby the borrower promises to repay the lender a specified sum of money under agreed to terms or on demand.Moneyzine EditorSeptember 21st, 2023
- The financial accounting term notes receivable refers to the obligations of a customer that is in the form of a promissory note, which is a written promise to pay a fixed sum of money to the company. Notes receivable appear on the balance sheet as a current asset.Moneyzine EditorSeptember 20th, 2023
- The term recognition of notes receivable is used to describe the process of acknowledging the existence of a notes receivable on the balance sheet of a company. Accounting practices dictate that companies record notes receivable using the present value of all future cash flows.Moneyzine EditorSeptember 21st, 2023
The term long-term notes payable refers to an agreement a company enters into with another party, which includes a formal written promise to pay pre-determined amounts on specific dates. To be categorized as a long-term note payable, the maturity of the note must be longer than one year or operating cycle. Both long-term and current notes payable appear in the liabilities section of a company's balance sheet.Moneyzine EditorJanuary 24th, 2024
The term mortgage note refers to a promissory note that is secured by a mortgage, which pledges the title to a property in the event of default. Also known as a real estate lien note, a mortgage note provides the holder of the security with a written promise to make interest and principal payments on specific dates.Moneyzine EditorFebruary 8th, 2024
