“Bankruptcy” is a legal process for a company that becomes unable to pay off its Debts or pay back its Creditors. Title 11 of the United States Code, or the Bankruptcy Code, governs the Bankruptcy process while the U.S. Bankruptcy Courts oversee the company’s compliance with the federal law.

Generally, a company declaring Bankruptcy has two alternative forms of relief – liquidation or reorganization. Chapter Seven of the Bankruptcy Code details the liquidation process whereby the company’s Assets are sold for cash to pay back its Creditors. Chapter Eleven of the Bankruptcy Code provides the reorganization process where the company creates a plan to restructure its Debt while continuing business operations under the U.S. Bankruptcy Court’s supervision.

Typically, a company will attempt to restructure its Debt before liquidating its Assets.