Bankruptcy

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. It is a state or condition in which a party is insolvent or unable to meet debt obligations

NB: Occasionaly the term may be used (informally) as synonymous with "going out business" namely a commercial entity winding down operations. It is appropriate to distinguish the nature of Business Failure

Details

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)

See Also

• Bankruptcy is a Credit Event in the context of Credit Derivative contracts
• The non-performing Loan Glossary puts this term in the context of other terminology used
• In ex-ante Credit Risk Modelling bankruptcy is one of the end states of problematic loans and has implications for Loss Given Default models
• Barron's Dictionary of Banking Terms, Sixth Edition, 2012
• https://thelawdictionary.org/bankruptcy/

Disclaimer

This entry annotates a FIBO Ontology Class. FIBO is a trademark and the FIBO Ontology is copyright of the EDM Council, released under the MIT Open Source License. There is no guarantee that the content of this page will remain aligned with or correctly interprets the concepts covered by the FIBO ontology.