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Finance Dictionary and Glossary of Investment Terms
Inability to pay debts. In bankruptcy of a publicly owned entity, the ownership of the firm's assets is transferred from the stockholders to the bondholders.
A proceeding in a federal court in which an insolvent debtor's assets are liquidated and the debtor is relieved of further liability. Chapter 7 of the Bankruptcy Reform Act deals with liquidation, while Chapter 11 deals with reorganization.
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.
The state of a person or firm unable to repay debts.