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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 ?
No Fellows machines or cutters have been built or shipped since the February closing of the North Springfield, Vt., plant when the Goldman Industrial Group's voluntary bankruptcy was announced.
Transportation Technologies, the parent company of beverage truck body builders Hackney & Sons and Kidron, has moved to begin voluntary bankruptcy actions under provisions of Chapter 11 of the U.S.
* A January 2000 mailing asserting that CAN faces "voluntary bankruptcy" and may soon go out of business.
In 1994, he and his law firm filed for voluntary bankruptcy under chapter 11.
But CIC "filed for voluntary bankruptcy" in February and has sent prospectuses "to over 100 parties as part of a bankruptcy sale of assets," according to Steven Victor, the current chief financial officer brought in by Development Specialists Inc., an international turnaround firm.
The lender will also frequently request various special rights, including the ability to accelerate the loan upon a bankruptcy filing by the SPE and, in many instances, a tiny ownership interest in the SPE in order to permit the lender to "veto" a voluntary bankruptcy filing by the SPE.
She declared voluntary bankruptcy after crisis talks.
And Colt was relying heavily on Sporter sales to recover from a voluntary bankruptcy filing.
The date on which the petition is filed is called the "commencement date." Whether the petition is filed by the debtor (voluntary bankruptcy) or a group of creditors (involuntary bankruptcy), an "order for relief" (discharge of debt) is what's being requested of the bankruptcy court.
The taxpayer filed a voluntary bankruptcy petition in July, 1984.
In January 2013, the firm was forced to file for a voluntary bankruptcy as it was unable to pay USD600m (EUR452m) worth of fines and penalties.

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