Voluntary Bankruptcy Definition and Legal Meaning
On this page, you'll find the legal definition and meaning of Voluntary Bankruptcy, written in plain English, along with examples of how it is used.
What is Voluntary Bankruptcy?
(n). When the assets of a person is estimated to be insufficient to pay off his liabilities and the person is not in a position to clear his accrued liability, creditors can move to the court to attach the property for getting their payments after declaring him as bankrupt. If the person himself find incapable of meeting his liability he can move to the court requesting to declare his as bankrupt. Such filing of application is called Voluntary bankruptcy.
History and Meaning of Voluntary Bankruptcy
Voluntary bankruptcy refers to the process by which an individual or a company voluntarily files for bankruptcy because they are unable to pay off their debts. The term "voluntary" means that the individual or company initiates the bankruptcy proceeding on their own accord, rather than being forced into bankruptcy by a creditor. Voluntary bankruptcy provides debtors with a fresh start and protects them from continued harassment by their creditors.
The concept of voluntary bankruptcy has been around since ancient times. In ancient Greece, a debtor who could not pay off their debts would be forced into slavery until their debts were paid. The Roman Empire had similar laws governing debtors. The modern concept of voluntary bankruptcy emerged in the early 19th century in the United States when the government passed laws allowing individuals to declare bankruptcy voluntarily.
Examples of Voluntary Bankruptcy
John, a freelance photographer, is deep in debt and unable to pay off his debts. He decides to file for voluntary bankruptcy to protect himself from his creditors and get a fresh start.
XYZ Company, a small business, has accumulated a significant amount of debt and is unable to pay it off. They file for voluntary bankruptcy and work with a bankruptcy trustee to liquidate their assets and pay off their debts.
Due to the COVID-19 pandemic, many businesses have been struggling financially. Several large companies such as Neiman Marcus and J.C. Penney have filed for voluntary bankruptcy to stay afloat and restructure their businesses.
Legal Terms Similar to Voluntary Bankruptcy
- Involuntary Bankruptcy: Involuntary bankruptcy is initiated by creditors when they believe that a debtor is in financial distress and unable to pay off their debts.
- Bankruptcy Trustee: A bankruptcy trustee is a person appointed by the court to oversee the proceedings of a bankruptcy case and ensure that the debtor's assets are liquidated and their debts are paid off.
- Chapter 7 Bankruptcy: Chapter 7 bankruptcy is a type of bankruptcy in which the debtor's assets are liquidated to pay off their debts.
- Chapter 11 Bankruptcy: Chapter 11 bankruptcy is a type of bankruptcy in which a business restructures its debts and operations to stay afloat and pay off its debts.