The financial status of a firm that has been legally judged either to have debts that exceed assets or to be unable to pay its bills. Formal bankruptcy may result in reorganization and continued operation of the firm, or it may require liquidation and distribution of the proceeds. In either case, most security owners, especially shareholders, are likely to suffer losses. See also chapter 7, chapter 11, receivership, reorganization.
Legally declared insolvency, or inability to pay creditors.
If an individual or a corporation declares bankruptcy, a court will appoint an official to make an inventory of the individual's or corporation's assets and to establish a schedule by which creditors can be partially repaid what is owed them.
An individual who is lacking a specific resource or quality is sometimes said to be bankrupt, as in intellectually bankrupt or morally bankrupt.
legal proceeding initiated by an individual or company that is unable to pay
its debts. A bankruptcy can either liquidate the debts or attempt to develop
a reorganization plan under which the debt, or some of it, will be paid. The
most common type of bankruptcy filing is Chapter
11, in which a business is allowed to continue running while it reorganizes
its debts. Creditors are prevented from attempting to collect debts from a
company that is in a Chapter 11 bankruptcy proceeding. In a Chapter 11, the
debtor and creditors meet to draw up an agreement for repaying some of the
Some companies close
down through a Chapter 7 bankruptcy (also called a liquidation), instead of attempting to reorganize. In a Chapter 7
bankruptcy, a court-appointed interim trustee is given discretion to make
management changes, arrange unsecured financing, and wind down the business.
Individuals who want to get rid of their debt and not attempt to pay anything
back file for Chapter 7 bankruptcy.
Individuals who want
to reorganize their debts and pay back a portion file for a Chapter 13 bankruptcy. Typically, people who make this type of filing
pay something each month for several years to the bankruptcy court, which
distributes the funds to the creditors. When the payments are completed, the
debtor’s debts are discharged. Chapter 13 bankruptcies allow individuals to hold
onto more assets than Chapter 7 bankruptcies do.
Bankruptcies fall into
two categories. A voluntary bankruptcy occurs when the debtor petitions the
court to begin a bankruptcy proceeding. An involuntary
bankruptcy occurs when
the creditors petition the court to put the debtor into bankruptcy. The term chapter refers to the chapter of the bankruptcy law where the
provisions are outlined.
The financial status of a firm that has been legally judged either to have debts that exceed assets or to be unable to pay its bills. Formal bankruptcy may result in reorganization and continued operation of the firm or it may require liquidation and distribution of the proceeds. In either case, most security owners, especially shareholders, are likely to suffer losses. Stock transaction tables indicate that a company is in bankruptcy proceedings by appending vi or q immediately before the name of the stock. See also Chapter 7, Chapter 11, reorganization.
A federal judicial procedure
by which most debts owed by a person or entity are extinguished or reduced or
the payment of which are delayed.
Chapter 7 bankruptcy
A bankruptcy proceeding whereby most of the debtor’s assets are
collected and sold, the proceeds are distributed among the creditors, and the
debtor’s liabilities are discharged. Also called a straight bankruptcy.
Chapter 11 bankruptcy
A bankruptcy proceeding whereby a debtor, usually a
business, is allowed to reorganize itself and restructure its finances under
court supervision and to arrange and carry out a court-approved repayment plan
with its creditors while continuing to operate its business. Also called reorganization.
Chapter 12 bankruptcy
A bankruptcy proceeding whereby a farmer with a regular
income who is insolvent can keep and continue operating his farm while
arranging and carrying out, under court supervision, a repayment plan with his
Chapter 13 bankruptcy
A bankruptcy proceeding whereby a person with a regular income is
allowed to propose a plan to reduce her obligations or extend the period to pay
those obligations and allow her future earnings to be collected by a trustee
and paid to the debtor’s unsecured creditors. Also called rehabilitation.
A bankruptcy proceeding initiated by a creditor to legally declare a
debtor to be bankrupt and to impound all of the debtor’s non-exempt property,
distribute it or its proceeds to the creditors, and extinguish the debtor’s
A bankruptcy proceeding voluntarily initiated by a debtor
who files a petition with the bankruptcy court to be legally declared a
bankrupt and, during the proceeding, surrenders his property in order to
discharge his debts.