Bankruptcy

This is the term for a legal proceeding which occurs when the liabilities or debts of an individual or a firm exceed their assets or revenues over an extended period of time.

Technically, bankruptcy begins for debtors at the point of filing. It is also bankruptcy if the debtor is proved to have committed an act of bankruptcy, at the time of the act. If an individual or a firm declares bankruptcy, the assets are taken and allocated to various creditors, and courts may force restrictions on their future borrowing capacities.

The point at which bankruptcy occurs, and the nature of bankruptcy, will affect the application of the bankruptcy procedure. Under federal law, a debtor hands over his assets to the bankruptcy court and is relieved of the future obligation to repay his unsecured debts.