What is the definition of bankruptcy?

Bankruptcy is defined as a court proceeding for liquidating the assets of a debtor, which means that it allows individuals or businesses that are unable to meet their financial obligations to seek relief from some or all of their debts. During this process, a court will evaluate the debtor's financial situation and oversee the distribution of their non-exempt assets to creditors.

This legal framework is crucial because it provides a way for debtors to address overwhelming debt while ensuring fair treatment of creditors. It also often offers the possibility of a fresh start for the debtor, allowing them to reorganize their debts (as in Chapter 13 bankruptcy) or liquidate their assets (as in Chapter 7 bankruptcy).

The other options represent different legal concepts or processes that do not specifically capture the essence of bankruptcy. For example, transferring property to a third party can occur in various contexts but doesn’t define bankruptcy. An agreement made under oath refers more to contracts or sworn declarations, while a lien for unpaid debts pertains to a legal claim against property rather than the overarching bankruptcy process itself.