Bankrupcy defined.
Bankruptcy is a legally declared inability of an individual or organization to pay their creditors. A declared state of bankruptcy can be requested by creditors in an effort to recoup a portion of what they are owed. In the overwhelming majority of cases, the bankruptcy is initiated by the bankrupt individual or organization.
The primary purpose of the laws of bankruptcy are to give an honest debtor a "fresh start" in life by relieving the debtor of most debts, and to repay creditors in an orderly manner to the extent that the debtor has the means available for payment.
Bankruptcy allows debtors to resolve debts through the division of non-exempt assets among creditors. The declaration of bankruptcy allows debtors to be discharged of most of their financial obligations, after their non-exempt assets are distributed, even if their debts have not been paid in full.
During a bankruptcy proceeding, the "debtor" is protected from action by creditors by a legally imposed "stay."
