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1 : the quality or state of a bankrupt [filed for ]
2 : the administration of an insolvent debtor's property by the court for the benefit of the debtor's creditors [the debt was discharged in ] [ proceedings] see also adequate protection Bankruptcy Code in the Important Laws section compare insolvency, receivership NOTE: Bankruptcy protects the debtor from debt collection by creditors. A debtor may file for bankruptcy, which is called “voluntary bankruptcy,” or a creditor may petition the court to declare the debtor bankrupt, which is called “involuntary bankruptcy.” Involuntary bankruptcy is allowed only 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 adjustment for a family farmer (chapter 12), and debt adjustment for an individual with a regular income (chapter 13). Municipalities may file for bankruptcy under chapter 9. Generally, not all debts are repaid in a bankruptcy. The court determines which debts are to be repaid according to their priority, and the debtor is typically granted a discharge from unpaid debts that are dischargeable under the Bankruptcy Code.
Source: Merriam-Webster's Dictionary of Law ©1996. Merriam-Webster, Incorporated. Published under license with Merriam-Webster, Incorporated.