Status of a debtor who has been declared by judicial process to be unable to pay his or her debts. It also refers to the legal process involved: the administration of an insolvent debtor's property by the court for the benefit of the debtor's creditors. Filing by a debtor is called voluntary bankruptcy; involuntary bankruptcy is declared by the court upon petition by a creditor. The U.S. Bankruptcy Code makes four types of relief available to bankrupt individuals or corporations: liquidation (under Chapter 7), reorganization (Chapter 11), debt adjustment for a family farmer (Chapter 12), and debt adjustment for an individual with a regular income (Chapter 13). Municipalities may file under Chapter 9. Generally, not all debts are paid in a bankruptcy. The court determines which debts are to be repaid, and the debtor is typically granted a discharge of the rest. See also insolvency.

This entry comes from Encyclopædia Britannica Concise.
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