Also known as: insolvency proceeding · bankruptcy proceedings
Written by attorneys · grounded in primary & secondary sources — see below
A legal process intended to liquidate or rehabilitate the estate of an insolvent person or entity. The term includes an assignment for the benefit of creditors and any other proceeding with that purpose.
After Insight Consulting files for bankruptcy and obtains a discharge of its obligations to a supplier, the company's president signs a written promise to pay half the discharged amount. The supplier later sues to enforce the promise. The promise binds the company because an express undertaking to pay a debt discharged in insolvency proceedings is enforceable.
Interlink Communications grants a lender a security interest in its accounts receivable. When Interlink enters insolvency proceedings, the lender traces the proceeds into a commingled deposit account. The lender's perfected interest continues in the identifiable proceeds under the rules governing insolvency proceedings.
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The UCC defines insolvency proceedings to include an assignment for the benefit of creditors and any other proceeding intended to liquidate or rehabilitate the estate of the person involved. Both state-law assignments and federal bankruptcy cases fall within the definition.
Supporting sources
No. An express promise to pay all or part of an indebtedness discharged or dischargeable in insolvency proceedings begun before the promise is made remains binding on the promisor.
Supporting sources
A holder in due course takes free of most defenses, but discharge of the obligor in insolvency proceedings remains assertable against even a holder in due course under UCC § 3-305(a)(1)(iv).
Supporting sources
…dissent ignore the clear text of the statute in an apparent rush to ensure that secured creditors are not undercompensated in bankruptcy proceedings. But the statute that Congress enacted does not require a debtor-specific risk adjustment that would put secured creditors in the same position as if they had made another loan. It is for…