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Simple English definitions for legal terms
bankruptcy case
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A quick definition of bankruptcy case:
A bankruptcy case is a legal process where a person or a company who cannot pay their debts seeks financial relief and undergoes a supervised reorganization or liquidation of their assets for the benefit of their creditors. There are two general forms of bankruptcy: liquidation and rehabilitation. In a liquidation case, the debtor gives up all their nonexempt property and hopes to obtain a discharge. In a rehabilitation case, creditors look to future earnings of the debtor to satisfy their claims. Bankruptcy law deals with the rights of debtors who are financially unable to pay their debts and the rights of their creditors. The term bankruptcy comes from the Italian banca rotta, referring to the medieval Italian custom of breaking the counter of a financially failed merchant.
A more thorough explanation:
A bankruptcy case is a legal proceeding that begins when a debtor files a petition under a bankruptcy statute. The purpose of bankruptcy is to provide financial relief to an insolvent debtor and to supervise the reorganization or liquidation of the debtor's assets for the benefit of creditors.
There are two general forms of bankruptcy: liquidation and rehabilitation. In a liquidation case, the trustee collects the nonexempt property of the debtor, converts it to cash, and distributes the cash to the creditors. In a rehabilitation case, creditors look to future earnings of the debtor to satisfy their claims, and the debtor generally retains its assets and makes payments to creditors pursuant to a court-approved plan.
Examples of bankruptcy cases include:
- A debtor filing for Chapter 7 bankruptcy, which is a liquidation case where the debtor gives up all nonexempt property and hopes to obtain a discharge.
- A debtor filing for Chapter 13 bankruptcy, which is a rehabilitation case where the debtor retains its assets and makes payments to creditors from postpetition earnings.
- Creditors filing an involuntary bankruptcy petition against a debtor who owes them money.
These examples illustrate the different types of bankruptcy cases and how they can provide relief to debtors and creditors. Bankruptcy law is a field of law that deals with the rights of debtors and creditors in bankruptcy cases.