Bankruptcy

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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.

BREAKING DOWN '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.

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RELATED FAQS
  1. What are the financial consequences of filing for bankruptcy?

    The financial consequences of filing for bankruptcy are substantial and can be long-lasting. They include impacts on your ... Read Full Answer >>
  2. How does market share affect a company's stock performance?

    Gains or losses in market share can have significant impacts on a company's stock performance, depending on industry conditions. ... Read Full Answer >>
  3. Is credit counseling as damaging as bankruptcy on my credit report?

    Credit counseling is not as damaging as bankruptcy to your credit report. Credit counseling ends up being noted on your credit ... Read Full Answer >>
  4. How does the market share of a few companies affect the Herfindahl-Hirschman Index ...

    In economics and commercial law, the Herfindahl-Hirschman Index (HHI) is a widely used measure that indicates the amount ... Read Full Answer >>
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    Some alternatives a company's owners can attempt prior to resorting to liquidation are selling the company, raising money ... Read Full Answer >>
  8. Are stock investors technically creditors?

    Investors who buy stock in a publicly traded company actually own small pieces of the company and are not creditors. Creditors ... Read Full Answer >>
  9. Who can attend the meeting of creditors (341 hearing)?

    The meeting of creditors, otherwise known as a 341 hearing, is a mandatory meeting for personal bankruptcy filers. A few ... Read Full Answer >>
  10. What are the full rights of creditors in cases of bankruptcy?

    Creditors have a right to company assets before company owners do during bankruptcy proceedings. Company assets are liquidated ... Read Full Answer >>
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