In ancient time there was no idea of bankruptcy exists and reasons of bankruptcy. When you cannot pay back debts to the owner, then they have the authority to take your wife, children, and other members as debt slavery. According to some books, this debt slavery stays till their death. But some books write that this debt slavery stays for five years.
With time the idea of bankruptcy was established in many countries. Now bankruptcy is one of the most popular ways to take and give debt or loan. Bankruptcy can affect the economy of any country. It is known as a legal way to recover debts.
In present economy crises and other reasons caused a great loss to many businesses. The only thing that can give a kick start to their business is taking debt from a bank or other legal source. Most of the people take a loan from the bank to start their business or other needs.
Bank provide them with a loan based on some guarantee of property papers, cars or business. When they can’t return the loan to the bank, then the bank got the authority to sale their property to recover their money. There are many reasons which lead any business towards bankruptcy.
Here are some common reasons for bankruptcy:
Expenses of medical:
According to research by America in 2019, the reason of the 65.5% cases of bankruptcy is a sudden medical emergency. A medical emergency is known as one of the mind shaking emergency for any person or a family. This requires a long time period to get out of this crisis mentally and physically.
In present affording expensive bills of hospitals and doctors is not easy. It requires a huge bank balance to recover this shock. A businessman who doesn’t have any savings or back up plan for sudden expenses due to health issue can’t recover easily from this shock. This may cause bankruptcy to recover this loss.
Loss of job:
In this pandemic situation, many businesses have gone through major losses due to the lockdown situation. This loss causes unemployment and economy crises. After losing their jobs, people are tending to start their own business. Starting a business requires investment and skills.
The only way to arrange investment for the business is by taking a loan from a bank. But the bank has policies for the loan you have to give them your property papers as a guarantee. Due to some reasons like a loss in business, you can’t pay the debt back they got the authority to sell your property to recover the loan. Loss of job is also considered as one of the common reasons for bankruptcy.
Spending more than earning:
Some people have the habit of spending too much money without any reason. They have no control over their expenses. Most of them spend money without thinking which results in a money crisis. This money crisis may cause a business disturbance. The business may lead to loss, and you may face a shortage of money to invest in further projects.
The only option left for you is a bank loan to save your business. But when you keep making that mistake again and again, then you will face bankruptcy. You need to manage your expenses according to your earning. This will help you to save from bankruptcy. Excess use of income is one of the common reasons for bankruptcy.
A crisis in financial situation is one of the reasons for bankruptcy. Reasons for the financial crisis are sudden expenses of marriage, study or health. When you already have taken debt from the bank than a sudden loss or financial crisis may lead to bankruptcy if you don’t pay back debt then the bank can legally bankruptcy your property to recover the loan. Bankruptcy is the last thing that can save you from this crisis.
Loss of income:
In this situation of lockdown, many companies are going through a crisis. They are cutting down their expenses to cover up their loss. Cutting down expenses means cutting down the pay of their employees. Sudden reduce in pay can shake the monthly expenses graph.
If you pay your debt instalments monthly, then a sudden change in income can make it difficult to pay the instalment. Not paying instalment may result in bankruptcy because banks have to recover his loss at any cost. They have the legal authority to do so.
Investing money without a proper plan:
Some people are too eager to start their business that they invest a huge amount in any business without any proper guideline. Starting a business is not an easy thing. It requires great knowledge, plan, and guideline. Starting a business without a plan is wasting money.
People took a loan or debt from the bank to start a business. They invest this money without any proper plan. This leads to a great loss in business and money crisis. After this loss, you don’t have enough money to pay the debt of a bank. Now the bank can sale your property to recover their debt. This is one of the major reasons for bankruptcy.
The major reason for the loss in any business is a fraud. A client, employee or investors may do this. Fraud is one of the most unexpected ways of loss. No one has prepared a backup plan in case of loss due to fraud. This may lead to a great crisis in any business. Due to this loss, you are not able to pay the debt of the bank. Then the bank can legally sale your property to recover their debt. Fraud is known as one of the most common reasons for bankruptcy.
In the past, there was no idea of bankruptcy. When you take debt from anyone, and you can’t pay back, then they can make your family their slaves. You have to pay the debt to save your family. By the time it changes into bankruptcy. Now if you can’t pay debt bank have authority to sale your property by order of law.
There are many reasons for bankruptcy in 2020 because there is a great economic crisis occurs in many countries. The economic crisis affects all businesses. Even they are on small scales or large scales. Sudden expenses like medical emergency, financial crisis, fraud, and spending more than your earning lead you to bankruptcy.