bankruptcy

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bankruptcy,

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.

Bibliography

See study by T. Jackson (1986).

Bankruptcy

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 ?
Second, the borrower is often asked to covenant against a voluntary bankruptcy filing.
At 3pm Irish time Mr Drumm made a formal petition for voluntary bankruptcy in Massachusetts.
Elkins, Chairman of Holley's Board of Directors said, "We initiated Holley's voluntary bankruptcy case in September 2009 after carefully evaluating the effects of the economic recession and related collapse of the credit markets.
The glamour couple together operated some of Scotland's trendiest night spots, but their marriage has failed to survive the pressure of Colin's voluntary bankruptcy.
Edwards declared voluntary bankruptcy last year but is expected to continue operating new theaters, including the Palace and the company's Canyon Country 10-plex, as part of its reorganization.
In 1991 Edwards went into voluntary bankruptcy after a trust fund into which he had put all his earnings lost pounds 250,000.
Over the course of approximately thirty days, the Financial Restructuring Group raised debtor-in-possession financing for Emivest to support a voluntary bankruptcy filing.
Before the clubs was put into voluntary bankruptcy, it had been reported that the creditors were steadfast in accepting no less than $300 million.
the last of America's subprime mortgage lenders -- filed a voluntary bankruptcy petition in May.
The Tomakomai branch of the Sapporo District Court ruled Wednesday that voluntary bankruptcy procedures be launched for a Hokkaido meat processor involved in a false-labeling scandal.
The restaurant's owner Matt Charboneau reported about $255,000 in assets, according to his voluntary bankruptcy petition.
Edwards declared voluntary bankruptcy last year, but is expected to continue operating newer theaters, including the Palace and the company's Canyon Country 10-plex, as part of a reorganization.

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