For most people there is no difference between bankruptcy and liquidation. I
also did find it hard to believe they really are not one and the same thing. The
terms amount to the same meaning though, the inability of a person or an
entity to pay up their debt.
Bankruptcy is a state where an individual or a company is not able to pay off
his outstanding debts. This is the last stage of insolvency and a petition is filled
either by the debtor or by the creditor stating that they are bankrupt. In this
scenario the court authorizes the property and assets of the insolvent to be
dissolved to the various creditors.
Liquidation on the other side is the process in which a company is completely
terminated, in other words winding up of a company. Assets are sold out to
pay off any claims and accounts settled. No further dealings are done in the
company’s name after liquidation.
Now, bankruptcy and liquidation is not the same thing. They have differences.
: Liquidation is only limited to companies while bankruptcy even a person can
: Bankruptcy can be done voluntarily whereas liquidation is either voluntarily
or compulsory when petition is filed by the creditors.
: Liquidation is done due to financial instability or some other reasons whereas
bankruptcy is because of financial crisis or insolvency.
You will also notice that there are similarities in both cases like:
In both there is selling of assets
There is an order from the court
In both debts are always more than assets
Both can be done voluntarily