Bankruptcy

From Open Risk Manual

Definition

Bankruptcy is a legal term, denoting the status of a legal entity (person, firm, sovereign) that is unwilling or unable to repay obligations to creditors.

The detailed procedure, meaning and implications of bankruptcy differ by jurisdiction (regions of common applicable law). A list of different definitions and practices by country is maintained in Wikipedia. There are some common elements across jurisdictions:

  • It is typically the debtor (borrower) who initiates bankruptcy proceedings (that is, elects to involve the legal system in dealing with bilateral relationships with creditors)
  • The process is managed my third parties (trustees)
  • There are detailed legally binding guidelines that govern how the debtor's assets will be used to repay outstanding debts

Another term denoting similar legal status is Insolvency. Depending on jurisdiction these two terms may be equivalent or they may refer to different classes of legal proceedings (e.g., different legal entities)

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