Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debtor.
Bankruptcy is not the only legal status that an insolvent person may have, and the term bankruptcy is therefore not a synonym for insolvency. In some countries, such as the United Kingdom, bankruptcy is limited to individuals; other forms of insolvency proceedings (such as liquidation and administration) are applied to companies. In the United States, bankruptcy is applied more broadly to formal insolvency proceedings. In France, the cognate French word banqueroute is used solely for cases of fraudulent bankruptcy, whereas the term faillite (cognate of "failure") is used for bankruptcy in accordance with the law.
In the former Federal Republic of Germany, there were 18,000 cases of insolvency in 1985 compared to 4,222 in 1970. Bankruptcy filings by individuals in the USA increased rapidly at the start of the 1980's, reaching by 1992 an estimated 900,000 filings per year (triple the number in 1984). A 1993 report, however, suggested a marked decline in US filings, as bankruptcies were down in January 1993 by 20% (February 1993 by 11%, and March 1993 by 7%) compared to the previous year.
Insolvencies are part of the daily lot of any open market-economy system, where enterprises automatically take economic and financial risks which do not always pay off.