Bankruptcy is a state where the company is unable to pay back its debt. In order to avoid bankruptcy we executed two tests with the help of the models viz. Altman Z Score and KMV model for bankruptcy prediction prior to its occurrence. 40 Indian Companies from diverse sector were selected and were tested for the accuracy. It was found that KMV (derived from Merton distance to default model) is better in prediction of companies which have poor financial statement whereas Altman Z Score equally effective is overridden by KMV as it gives probability for only 1 year.