Glossary: Bankruptcy

Bankruptcy secures the debtor from debt collection by creditors. A debtor might apply for bankruptcy, which is called “voluntary bankruptcy,” or a creditor may petition the court to state the debtor bankrupt, which is called “involuntary bankruptcy.” Involuntary bankruptcy is allowed just under chapter 7 or chapter 11 of the U.S. Bankruptcy Code.

There are four types of relief available to individuals or corporations under the Bankruptcy Code: liquidation (chapter 7), reorganization (chapter 11), debt modification for a family farmer or fisherman (chapter 12), and debt change for an individual with a regular income (chapter 13). Municipalities might apply for bankruptcy under chapter 9.

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The bankruptcy court figures out which debts are to be repaid according to their concern, and the debtor is usually granted a discharge from debts that are dischargeable under the Bankruptcy Code.

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