Legal procedure for liquidating a business (or property owned by an individual) which cannot fully pay its debts out of its current assets. Bankruptcy can be brought upon itself by an insolvent debtor (called 'voluntary bankruptcy') or it can be forced on court orders issued on creditors' petition (called 'involuntary bankruptcy'). Two major objectives of a bankruptcy are (1) fair settlement of the legal claims of the creditors through an equitable distribution of debtor's assets, and (2) to provide the debtor an opportunity for fresh start. Bankruptcy amounts to a business-failure, but voluntary winding up does not. See also insolvency.

Use bankruptcy in a sentence

  • Despite facing dire financial straits since losing his job six months earlier, Carl still thought of bankruptcy as a distant last resort.

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  • A common misconception states that student loan debt cannot be discharged in bankruptcy, however a recent study concluded that forty percent of debtors that petitioned the court were grated at minimum a partial discharge.

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  • If you get yourself in to so much debt that you don't think there is any way out your last resort may be to declare bankruptcy.

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