Technically, however, it is the legal process – under the Federal Bankruptcy Act – by which assets [of the debtor] are:
(ii) discharge the bankrupt (ie, free the debtor of his/her debts so that he/she may start anew).
At the state level, insolvency proceedings may be brought to obtain more limited relief.
See trustee [TRUSTEE IN BANKRUPTCY].
Compare receivership
- VOLUNTARY PROCEEDING
- a proceeding – under the Federal Bankruptcy Act – in which an insolvent debtor files a petition to be declared bankrupt.
- INVOLUNTARY PROCEEDING
-
a proceeding to:
(i) seize all of the insolvent debtor’s nonexempt property;
(ii) distribute it equally [among creditors]; and
(iii) release the debtor from liability. Notably, other qualified creditors have an absolute right to join in the original lawsuit (at any time before judgment is entered). - CHAPTER 11 REORGANIZATION
- in addition to voluntary and involuntary proceedings (in which a debtor is adjudged bankrupt), under Chapter 11 a debtor is permitted to postpone all payments on debts so that he/she can reorganize his/her business. While other bankruptcy proceedings seek to have the debtor’s assets sold (and to have all the creditors paid to the extent possible), Chapter 11 seeks to give the debtor a breathing spell with the hope that the business will recover (and all the creditors will be fully repaid). The goal is a plan that specifies how much the creditors will be paid, in what form they will be paid, and other details.
