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in law, settlement of the liabilities of a person or organization wholly or partially unable to meet financial obligations. The purposes are to distribute, through a court-appointed receiver, the bankrupt's assets equitably among creditors and, in most instances, to discharge the debtor from further liability. In the United States, bankruptcy is controlled by a federal law adopted in 1898 and amended several times, as by the Chandler Act (1938) and the Bankruptcy Reform Act (1978).

Bankruptcy proceedings may be voluntary (instituted by the debtor) or involuntary (instituted by creditors). The debtor may be insolvent—i.e., unable to pay all debts even if the full value of all assets were realized—or may become insolvent when current obligations mature. Bankruptcy is also permitted when the discharge of debts would otherwise be unduly delayed, e.g., if the debtor has fraudulently transferred property to put it out of a creditor's reach. When a person or corporation has declared or been adjudged bankrupt, preferred creditors (e.g., unpaid employees, or the federal government) are paid in full, and the other creditors share the proceeds of remaining assets.

The bankrupt individual receives more lenient treatment in the United States than in perhaps any other country, so that business initiative is not stifled by the threat of criminal or civil penalties following unintentional commercial failure. This ideal is evident in Chapter 11 of the bankruptcy code, which permits courts to reorganize the assets of failing businesses instead of ordering complete liquidation of these assets. The 1978 revision of the code made it easier for corporate management to remain in control of a company during reorganization. These more lenient provisions led to a rapid increase in filings in the 1980s and 1990s. In 2005 Congress passed a significant revision of the bankruptcy code affecting individuals, prompted in part by the increase in filings since 1978. Under the new law, it is harder for an individual to file a Chapter 7 bankruptcy, which extinguishes a person's debts, and it is easier for creditors to secure repayment of a debt over time. The changes were strongly supported by banks and credit card companies, but were also criticized by a number of bankruptcy experts for placing additional burdens on middle income families while not closing loopholes that benefit bankrupt corporations and wealthy individuals. Chapter 9 of the code provides for the reorganization of bankrupt municipalities.


See study by T. Jackson (1986).


See also Poverty.
Birotteau, César
ruined by bad speculations and dissipated life. [Fr. Lit.: Greatness and Decline of César Birotteau, Walsh Modern, 58]
Black Friday
day of financial panic (1869). [Am. Hist.: RHDC]
Black Tuesday
day of stock market crash (1929). [Am. Hist.: Allen, 238]
green cap
symbol of bankruptcy. [Eur. Hist.: Brewer Note-Book, 390–391]
Harland, Joe
drunk who loses fortune on Wall Street. [Am. Lit.: The Manhattan Transfer]
Hassan, Abu
pretends to be dead to avoid debts. [Ger. Opera: von Weber, Abu Hassan, Westerman, 138–139]
Henchard, Michael
loses business and social standing through bad financial planning. [Br. Lit.: Mayor of Casterbridge]
Lydgate, Tertius
driven deeper into debt on daily basis. [Br. Lit.: Middlemarch]
Panic of 1873
bank failures led to extended depression. [Am. Hist.: Van Doren, 267–268]
Queer Street
condition of financial insolvency. [Am. Usage: Misc.]
References in periodicals archive ?
From October 1, 2003, to September 30, 2004, bankruptcies fell 2.
Bankruptcies could increase pressure on Continental, American.
There is a burgeoning effort by asbestos plaintiffs' counsel to induce companies to create prepackaged bankruptcies, often extracting extra fees for facilitating a settlement.
Despite the large bankruptcies seen in bubble companies, golf and resort businesses, there were no mega-bankruptcies with over 500 billion Japanese yen [in] liabilities," Teikoku noted.
Expanding the registrar's jurisdiction makes more time available for the bankruptcy judges to deal with the larger commercial bankruptcies and insolvency estates.
Some of the abuses perpetrated in bankruptcies don't encourage lenders to make loans.
But bankruptcies spiked sharply in 1986 and have spiraled higher every year since, regardless of other economic indicators.
Despite this finding, they suggested changes in a number of areas, including partnership bankruptcy, mass tort damage claims, transnational bankruptcy and small business bankruptcies.
Kalikow's bankruptcy filing was evidence of the escalation in real estate-related bankruptcies, as the market continues to be flat and mortgage-holding banks grow increasingly impatient.
Fitch's rating analysis for dealer floorplan ABS incorporates stresses of MPR, default rates, recovery rates and lags, and purchase rates, among others to simulate the bankruptcies of the manufacturer, the finance company and multiple dealers.
With consumer bankruptcies soaring, federal law should be changed to channel more filers into debt-repayment programs, according to a draft proposal from a government advisory board.
In chapter 7 bankruptcies, liens survive intact and are not affected by the bankruptcy process.