Bankruptcy

AAA

DEFINITION of 'Bankruptcy'

A legal proceeding involving a person or business that is unable to repay outstanding debts. The bankruptcy process begins with a petition filed by the debtor (most common) or on behalf of creditors (less common). All of the debtor's assets are measured and evaluated, whereupon the assets are used to repay a portion of outstanding debt. Upon the successful completion of bankruptcy proceedings, the debtor is relieved of the debt obligations incurred prior to filing for bankruptcy.

INVESTOPEDIA EXPLAINS 'Bankruptcy'

Bankruptcy offers an individual or business a chance to start fresh by forgiving debts that simply can't be paid while offering creditors a chance to obtain some measure of repayment based on what assets are available. In theory, the ability to file for bankruptcy can benefit an overall economy by giving persons and businesses another chance and providing creditors with a measure of debt repayment.

Bankruptcy filings in the United States can fall under one of several chapters of the Bankruptcy Code, such as Chapter 7 (which involves liquidation of assets), Chapter 11 (company or individual "reorganizations") and Chapter 13 (debt repayment with lowered debt covenants or payment plans). Bankruptcy filing specifications vary widely among different countries, leading to higher and lower filing rates depending on how easily a person or company can complete the process.

RELATED TERMS
  1. Official Committee Of Equity Security ...

    A small group of the largest shareholders in a company formed ...
  2. Technical Bankruptcy

    The state of a company or person who has defaulted on a financial ...
  3. Prepackaged Bankruptcy

    A plan for financial reorganization that a company prepares in ...
  4. Delinquent

    The failure to accomplish what is required by law or duty, such ...
  5. Discharge In Bankruptcy

    A permanent order that releases the debtor from personal liability ...
  6. Senior Debt

    Borrowed money that a company must repay first if it goes out ...
Related Articles
  1. Fighting Back Against Collection Lawsuits
    Credit & Loans

    Fighting Back Against Collection Lawsuits

  2. Bankruptcy Protection For Your Accounts
    Retirement

    Bankruptcy Protection For Your Accounts

  3. A Lifeline For Those Drowning In Debt
    Credit & Loans

    A Lifeline For Those Drowning In Debt

  4. How To Survive A Bankruptcy Filing
    Credit & Loans

    How To Survive A Bankruptcy Filing

comments powered by Disqus
Hot Definitions
  1. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  2. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  3. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  4. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  5. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
  6. Earnings Before Interest After Taxes - EBIAT

    A financial measure that is an indicator of a company's operating performance. EBIAT, which is equivalent to after-tax EBIT ...
Trading Center