Insolvent – What is it, definition and concept | 2022

A bankrupt is a natural person or company that will no longer be able to manage their assets individually and independently like any person, but will need a figure to collaborate with them for their administration (the bankruptcy administrator). This, due to the inability to meet their debts and the need for creditors to be paid.

That is to say, the bankrupt is the debtor, natural person or legal entity, which due to its insolvency situation is declared by a judge to be insolvent.

The bankruptcy proceedings are made up of three main parts, the creditor part, the bankruptcy administration and the debtor part. The debtor party is made up of the bankrupt. It can be a natural or legal person who occupies this position in the contest process. Public administrations cannot find themselves in this competitive situation.

What does this creditor contest consist of? It is a specific judicial procedure regulated by commercial law where there is a debtor with multiple creditors who cannot see their credits satisfied. With this process the debtor tries to solve the lack of liquidity.

How does a person become bankrupt?

It can arrive at the request of the debtor himself or by his creditors. The reasons are:

  1. When requested by the debtor himself: insolvency of the debtor: it can be imminent or current. What does insolvency mean? It is the situation in which the debtor cannot meet his obligations. This is qualified as a voluntary contest.
  2. When requested by creditors: for this there must be:
    1. A final judicial or administrative declaration of insolvency of the debtor.
    2. An executive or enforcement title.
    3. The existence of embargoes in progress that generally affect the debtor’s assets.
    4. Non-payment of the debtor’s obligations.
    5. Non-payment of tax obligations, social security contributions for at least three months.
    6. This is qualified as necessary contest.
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What are the effects of the bankruptcy declaration?

The main financial consequences are:

  • If the bankruptcy is voluntary, the bankrupt will retain the powers of administration and disposal over the assets.
  • If bankruptcy is necessary, the powers of administration and disposal of assets will be suspended for the bankrupt. Who will do these functions? Bankruptcy administration.
  • As for the business activity of the debtor, you can continue. But the bankruptcy judge, or the bankruptcy administration, can request the suspension of economic activity.
  • The bankrupt has the obligation to collaborate with the bankruptcy administration, delivering the appropriate documentation. Likewise, he has the obligation to appear before any claim from the judge.
  • Lawsuits against the bankrupt will not be admitted until the bankruptcy process is resolved.

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