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bankruptcy

bankruptcy definition - legal

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 debtorÂ’s assets are collected and sold, the proceeds are distributed among the creditors, and the debtorÂ’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 creditors.

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 debtorÂ’s unsecured creditors. Also called rehabilitation.

involuntary bankruptcy

A bankruptcy proceeding initiated by a creditor to legally declare a debtor to be bankrupt and to impound all of the debtorÂ’s non-exempt property, distribute it or its proceeds to the creditors, and extinguish the debtorÂ’s liability.

voluntary bankruptcy

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.