Bad debt is an amount, where business suffers loss and that loss is counted as an expense, as the amount can’t be recollect by the owner. If the debtor declares bankruptcy, problems like bad debt arise. Bad debt is also known by money; therefore it is counted in expense. To account for bad debts, there are two types. They are allowance method and direct write off method. In allowance method, there is a rough idea made at the end of the year for the account of bad debt. It is done, so that they can decrease receivable amount. Many companies make bad debt allowance, as all debtors may pay in full. Money which you cant collect is called as debtor. It mainly arises, if the service or product is given on credit. If customers makes delay payment and later refuses to pay, than its understood that its a bad debt. Bankruptcy means the business which is not able to pay debts.
The process of bankruptcy starts as the petition is filed on creditor’s behalf or by the debtor’s. To recover the debt portion, all assets of debtor is evaluated. As the process of bankruptcy completes, debtors get a sigh of relief. Not to do bankruptcy fraud, as it is a crime. Strategic bankruptcy is different from fraud bankruptcy and is not a criminal act, as it can work against filer. Bankruptcy can disclose all the assets of the debtor. If petition is filed for bankruptcy, creditors can decide debtors assets value. In 1874, India came up with individual bankruptcy law, but still couldn’t got law on corporate bankruptcy. In U.K bankruptcy law got changed, where if debtors facing bankruptcy has to give all occupational pensions. The origin of bankruptcy law came up first through England, but is now known more in U.S. Bankruptcy can sometime lead to death, as there is loads of tension on debtor’s head. Always try not to follow in such cases. You can gather more details regarding bad debts and bankruptcy by visiting various web sites and different sites.