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How Relevant is Bankruptcy

Updated: May 10

Business or personal, is bankruptcy relevan? How many of us would like a do over, especially when the error is no fault of your own; or maybe it is your fault... it happened on your watch and you are the responsible person. Most people will appreciate second chances when they are in over their head under financial pressure.

I think of bankruptcy as an extreme form of insurance. It may help to put bankruptcy in perspective this way... under normal circumstances, insurance is based on insuring a large number of people. Based on actuarial math which is concerned with the laws of probability. It is concerned with predicting births, deaths, accidents, loss; and risks in general.

An insurance company expects to pay claims because accidents, deaths, catastrophes happen, and based on the probability of such they collect premiums to support operational cash flows and for profit. The basic model for an insurance company is simple. sell as many insurance policies as possible to broaden the coverage population and reduce the risk. In an ideal world the insurance company supplies the amount of insurance coverage demanded in exchange for the insurance risk to the population. The company collects enough revenue to pay claims and make a profit. <