Definition of bankruptcy

Legal state of insolvency. An individual or organisation is declared bankrupt if a court judges that the party involved can no longer meet debt payments to creditors. In the case of a company, the court may order its assets to be liquidated so that creditors can be paid. Different countries have different bankruptcy laws. Some may protect a company from its creditors and allow it to reorganise its business and reschedule its debts to avoid liquidation or closure. US bankruptcy laws provide for various procedures for companies and individuals - Chapter 7 of the Bankruptcy Reform Act deals with involuntary liquidation and provides for a court-appointed administrator; Chapter 10 allows a business to reorganise under a court-appointed independent manager; Chapter 11 allows voluntary reorganisation under existing management who negotiate with creditors; Chapter 13 allows individuals to repay creditors over time, normally from future income.