DEFINITION of 'Voluntary Bankruptcy'

A type of bankruptcy where an insolvent debtor brings the petition to a court to declare bankruptcy because he or she (in the case of an individual) or it (in the case of a business entity) is unable to pay off debts. The bankruptcy is intended to create an orderly and equitable settlement of the debtor's obligations.

BREAKING DOWN 'Voluntary Bankruptcy'

Voluntary bankruptcy is a bankruptcy proceeding initiated by a debtor who knows that they will not be able to satisfy the debt requirements of creditors. Voluntary bankruptcy is typically commenced when and if a debtor finds no other solution to the financial situation. Voluntary bankruptcy differs from involuntary bankruptcy which occurs when one or more creditors petitions a court to judge the debtor as insolvent (unable to pay).

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