Bankruptcy

Bankruptcy is the legal process by which the property of a person unable to pay debts is taken away and divided rateably among his or her creditors, after preferential payments such as taxes and wages. 

More than 90 percent of bankruptcy proceedings are voluntary. They are initiated by the debtor, who files a petition with the appropriate federal court. A bankruptcy trustee then collects and liquidates the debtor’s non-exempt property for the benefit of the unsecured creditors.

Until ‘discharged’, a bankrupt is severely restricted in financial activities. When ‘discharged' he or she becomes free of most debts dating from the time of bankruptcy.

Debtors who were unable to meet their financial obligations were harshly treated under the legal systems of most countries until relatively recent times. During one period in ancient Rome, creditors were entitled literally to divide a debtor’s body or to enslave debtors and their families. 

The word “bankrupt” is from the Italian "banca rotta," which literally means “broken bench."

In the 16th century, moneylenders often conducted their business on benches outdoors. The word “bankrupt” is from the Italian "banca rotta," which literally means “broken bench."

Peter Paul Rubens (1577-1640) (style of) - A Hand Holding an Empty Purse,

The Statute of Bankrupts of 1542 was the first statute under English law dealing with bankruptcy or insolvency.

Under the laws of England in the reign of King James I (1603–25), debtors who were unable satisfactorily to explain their inability to pay were placed in the public pillory. Debtors might be put to death if their failure to pay their creditors was due to fraudulent practices. 

With the development of more sophisticated trade and commercial practices, steps were taken to ameliorate the condition of defaulting debtors. Since the late 19th century, bankruptcy legislation in the United States has evolved to permit persons who are unable to pay their unsecured debts to be discharged from that responsibility if they were willing to liquidate their nonexempt property for ratable distribution among unsecured creditors.

On November 18, 1760 Castellania, the rebuilt debtors' prison in Valletta, Malta, received its first prisoners. Since then, increased lenience around bankruptcy laws have made prison terms for unaggravated indigence illegal over most of the world.

Troop Sport, a popular streetwear brand in the late '80s went bankrupt in 1990 because of fake rumors that it was owned by the he Ku Klux Klan.

The Enron scandal was an accounting scandal involving the Houston, Texas-based energy firm Enron Corporation. On December 2, 2001, less than two months after disclosing accounting violations, the company filed for Chapter 11 bankruptcy, evaporating nearly $11 billion in shareholder wealth. Its accounting firm, Arthur Andersen – then one of the five largest audit and accountancy partnerships in the world – was effectively dissolved.

The boxer Mike Tyson declared bankruptcy in 2003, despite having received over $30 million for several of his fights and $300 million during his career.

In 2008 Lehman Brothers Holdings Inc. was the fourth-largest investment bank in the United States . On September 15, 2008, the firm filed for Chapter 11 bankruptcy protection following the exodus of most of its clients, drastic losses in its stock, and devaluation of assets by credit rating agencies.  It was the largest bankruptcy filing in U.S. history and is thought to have played a major role in the unfolding of the financial crisis of 2007–2008. 

Following the bankruptcies of Lehman Brothers and Washington Mutual 11 days later, The Dow Jones Industrial Average fell 777.68 points on Se4ptember 29, 2008, the largest single-day point loss in its history. 

On July 18, 2013, Detroit became the largest U.S. city to file for bankruptcy, in light of the city's $18.5 billion debt and its inability to fully repay its thousands of creditors.

On May 3, 2017, Puerto Rico filed for bankruptcy after a massive debt and weak economy. It was the largest local government bankruptcy case in American history.

In most American states, a wedding ring is exempt by law from inclusion among the assets in a bankruptcy estate. This means that a wedding ring cannot be seized by creditors, no matter how much the bankrupt person owes.

Up to 80% of US lottery winners file for bankruptcy within five years.

Source Funk & Wagnall's Enyclopedia