Bankruptcy is a formal procedure formulated by law. It begins operation when a debtor fails to stick to the contractual obligations of making payments to the creditor. The history of law unveils varying consequences of bankruptcy processes on the economy. One result of modern legal systems is liquidating the debtor’s assets and meeting creditors’ claims.
A transfer of property rights occurs when a person or entity declares bankruptcy. The rule is the same, whatever assets a person or state owns. This article will debunk the importance of bankruptcy laws for economic growth. And how can a bankruptcy lawyer help one get the most significant advantage from the process?
Filing a petition for bankruptcy helps people and sate get their finances in shape. But the process involves legal matters. Thus, it is difficult to manage all the techniques alone. One may go per se and file a bankruptcy case without legal help. Yet, experts recommend seeking help from a bankruptcy lawyer.
A bankruptcy attorney is a specialized person providing legal advice to his clients. Here are some of the roles of a bankruptcy lawyer that highlight the need to hire a professional.
- Provides expert advice
- Prepares legal document
- Orients clients in the proper legal direction
- Represents his client in the court
- Guide you on the entire bankruptcy process
All these processes can begin with bankruptcy lawyers signing a written agreement. He handles legal representation on your behalf in the entire lawsuit. One can decide by himself whether he needs bankruptcy lawyers or not. If you want to ensure the odds of a successful bankruptcy, go on with a bankruptcy attorney.
Bankruptcy and Economic Growth
Traditional metrics used to estimate economic growth are GDP and the unemployment rate. Their outcomes largely depend on institutional policies intended to stimulate economic growth. States generally emphasize policies that encourage entrepreneurial enterprises and investments and reward risk-taking.
Bankruptcy experts add their excellence to this subject. They believe a critical bankruptcy policy is an essential element of any institution designed to speed up the state economy. This way, we can give a vent to bankruptcy in performing a due role in advancing a robust economy.
An effective bankruptcy process can ensure a free market and entrepreneurial economy. It encourages the efficient flow of funds and ideas to new businesses. Business ideas are often perceived by their potential to bring riches. However, the reality is risk-taking in a business can involve both these consequences;
- Large returns
- Failures and loss
This correlation between returns and losses has both upsides and downsides. So while setting an entrepreneurial idea, risk-taking must be accompanied by robust bankruptcy laws to assure the safety of assets.
How Bankruptcy Law Contributes to the Real Economy?
To understand the contribution of bankruptcy law to economic growth, let us first highlight some of its functions. The negative connotations traditionally associated with the process have now transformed. Bankruptcy and insolvency laws at the corporate level benefit the economy. It can be a powerful innovation, entrepreneurship, and economic growth tool.
These goals are achievable if a bankruptcy and liquidation regime follows these;
- Puts the debtor’s assets in a way that maximizes benefits
- Minimizes the destruction of values-driven assets obtained through liquidation
These goals are attainable through the below-mentioned processes of bankruptcy laws. They benefit all the parties involved in the process. However, the main focus always relies on preserving assets and maximizing their uses.
Provide Moratorium to Viable Companies Struggling Financially and Preserve their High-Value Assets
Viable companies facing financial difficulties and declaring themselves bankrupt must not be destroyed. When these are dealt with by an individual creditor, he might destroy all assets. Meanwhile, corporate bankruptcy laws provide a moratorium or automatic stay to viable debtors.
It facilitates a more coordinated action between the two parties. It also stops the creditor from enforcing his claims. Hence, a moratorium will not only save the property of the debtor but also its value to society. But it will also implement a more efficient and cooperative approach by the company’s creditors.
Bankruptcy Laws as Liquidity Providers for Companies Facing Financial Distress
For companies facing financial distress, bankruptcy laws act as liquidity providers. A firm on the verge of bankruptcy incentivizes its employees to abandon the company. Key lenders may also think of ending their business ties with the debtor. This is because they know their claims will go unpaid.
These actions are powerful enough to destroy the value of a viable company. Here, bankruptcy laws provide regulatory processes and prove life savior. Acting as a liquidity provider, these laws
- Stop the termination of Ispo facto clauses.
- Set administrative priority for claims initiated after the bankruptcy petition
Ispo facto clauses allow two parties to terminate the process if the debtor files for bankruptcy.
Reduce Frictions Impeding Productive Utilization of Assets
Modern bankruptcy laws reduce frictions that can hinder the best use of assets. When a firm reaches the edge of insolvency, its liabilities exceed assets at a fair valuation. Creditors realize that their amounts would not be paid. Hence, they have the due right to claim their payments.
Sooner or later, they can also use legal assistance to seize the company’s assets. Here, a successful bankruptcy law separates the outcomes of insolvency. It prevents the process from impacting the placement of investments in productive channels.
Tackle the Dead-End Consequences of Bankruptcy
Bankruptcy is a very critical component of any economic crisis. It helps the market flush away inefficient firms and reallocate capital to efficient companies. Countries have bankruptcy laws, but they all have problems regardless of the system. You can call them mere pieces of paper and give them a life; an entire legal infrastructure is required.
Fairly open courts and full-fledged methods of enforcement are necessary tools. In a legal infrastructure, the quality of economic efficiency directly impacts the economy. Bankruptcy means the death of a business or entity. It hurts all the shareholders, whether owners, managers, employees, or lenders. Bondholders, bank owners, and creditors get huge benefits from the process.
Last but Not Least
Bankruptcy is a legal way to shape your finances. A person, company, or state declares itself bankrupt when it has no more finances to pay debts. After knowing the situation, the creditor seeks legal services to claim his payments. A bankruptcy lawyer is a person who can help a debtor seek legal help and secure his assets or properties.
If applied at the corporate level, bankruptcy laws can scale up a state’s economy. It involves including strong and successful bankruptcy laws in all policy-making institutions. Later, they will help viable businesses overcome the effects of debt and thrive.