Bankruptcy is the legal process a business goes through when it cannot pay all of its debts. Under U.S. law, there are several different types of bankruptcy for businesses:
- Chapter 7, in which the debtor's business assets are liquidated (sold) to provide funds to repay the creditors, or
- Chapter 11, in which the business is reorganized to pay creditors while the business continues.
Bankruptcy rules and procedures are designated by U.S. federal law, under Title 11 of the United States Code. The bankruptcy code was changed in 2005 to make it more difficult for individuals to use bankruptcy as a means of avoiding debts.
