Bankruptcy
Bankruptcy - the state of a person who has been adjudged by a court to be insolvent. The court orders the compulsory administration of the bankrupt’s affairs so that his assets can be fairly distributed among his creditors .
Bankruptcy is the legal process by which the debts of firms, individuals, and some local governments in financial distress are resolved. Bankruptcy law includes several components. First, it provides a collective framework for simultaneously resolving all the debts of the bankrupt, regardless of whether they are due immediately or in the future and regardless of whether they are contingent or not. Second, bankruptcy law provides rules for protecting the collective debt resolution procedure and maximizing the value of assets that go into it. Third, bankruptcy law punishes bankrupts for failing to repay their debts in full .
The root, bankrupt, appears in English in the sixteenth century, as a term borrowed from the French (banquer-oute) and Italian (banca rotta) to identify “the wreck or break-up of a trader’s business in consequence of his failure to pay his creditors; or the shutting up or desertion of his place of business without paying his liabilities. Bankruptcy carried an enduring implication of dishonesty and profligacy, because the malversation of private property made it offensive. In legal parlance and in common usage today, bankruptcy has been largely stripped of moral censure and has come to refer strictly to the legal process that begins with a declaration – either by bankrupt or creditors –of a person’s inability to pay his or her debts .
⠀ Safley, T. M. (ed.) (2013). The History of Bankruptcy: Economic, Social and Cultural Implications in Early Modern Europe. London: Routledge (p. 3)
⠀ White, M. J. (2017). Economics of bankruptcy. In F. Parisi (Ed.). The Oxford Handbook of Law and Economics: Volume 2: Private and Commercial Law (pp. 447-480). Oxford University Press, Oxford (p. 447-448).