Establishing a payment plan with a debtor has several advantages. First, by breaking up a larger payment into smaller installments, it allows the debtor to make more realistic payments and removes the temptation to stop payment because the value of the debt is too high to pay off entirely. Additionally, being able to show that a debtor has may progress in making installment payments toward the full value of the debt can be used as strong evidence in court that the debtor acknowledges the full value of the debt and has promised to pay.
One of the requirements for a corporation to enter bankruptcy in Japan is that it be “balance sheet insolvent.” Balance sheet insolvent means that even if the corporation has assets on hand, it cannot make full payment to all of its creditors even by selling all of its remaining assets. In essence, the company’s debt outweighs its assets.
The bankruptcy estate is the total collection of assets that creditors must split upon the bankruptcy of a debtor person or corporation. It is often less than the total amount of the bankrupt person’s debts but splitting it fairly among all creditors is an integral part of the bankruptcy system.
Having a judgment against a debtor is one of the most solid pieces of evidence of a debt that a creditor can produce. However, obtaining a judgment against a debtor can often be a time consuming and expensive process, regardless of where the lawsuit was filed. Therefore, it sometimes is more efficient for the creditor simply to attempt to enforce the debt without first obtaining a court judgment.