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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 ?
The new Bankruptcy Law is considered to be an important step towards modernising insolvency law in the UAE and providing a template to other countries across the region.
Saudi Arabia is also planning to combine the new bankruptcy law with a new commercial mortgage system, which is expected to be passed by the Shoura Council within the next two to three weeks, and a new commercial franchising system, which should follow soon after, said the report.
Under Article 144 of the Bankruptcy Law, a competent court may obligate the directors and general managers, all or part of them, jointly or not, to pay all or part of the company's debts in cases where they are held responsible for the company's losses according to the Commercial Companies Law.
The Background to Introduction of Composition to the Old Bankruptcy Law
Mature economies have proven the need to implement a bankruptcy law in each country that wishes to strengthen its economic status," he added during a press conference at the Ministry of Finance in Abu Dhabi yesterday.
He said that the non-existence of a bankruptcy law in Pakistan is a serious problem for the private sector and a discouraging factor for growth of businesses, especially the small and medium sector.
According to the statistics of the Ministry of Economy, six bankruptcy proceedings in Macedonia are led under the bankruptcy law of 1989 and 75 under the bankruptcy law of 1997.
Al Khouri said the draft federal bankruptcy law will be applicable nationwide, indicating that the new law includes over 430 articles.
bankruptcy law cannot effectively unwind complex nonbank financial institutions, even if the law is amended.
In most cases in the past, the courts have not been in favor of applying the bankruptcy law -- the tendency has been to go around the bankruptcy law and go straight for liquidation," said Essam al-Tamimi, senior partner at Al-Tamimi & Co.
Summary: The renewed promise that a new UAE bankruptcy law is in the works is welcome, but we need to move much further beyond talk, thinks Kipp.
The world's first bankruptcy law, passed in England in 1542, considered a bankrupt individual a criminal and punishments ranged from incarceration in prison to death sentence (bankruptcydata.

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