Business Bankruptcy Money Company Assets Petition Sold Made

When a U.S. company is failing and can no longer pay its debts, it needs to "declare bankruptcy" (officially announce that the company is closing because it does not have enough money). The laws and "regulations" (rules) for declaring bankruptcy are different in every state.

The most common type of bankruptcy is "Chapter 7 bankruptcy" where the company "files a petition for bankruptcy" (presents all the documents to the government), showing that it does not have enough money to "cover" (pay) its debts. Then a "trustee" (a person or organization that is responsible for the company) collects all of the company's "assets" (things that can be sold for money) and sells them. Sometimes the company can "state" (say) that certain assets are "exempt," meaning that they cannot be sold as part of the bankruptcy proceedings. The courts decide whether assets can be made exempt.

The "proceeds" (money made from selling things) from selling the assets are given to the "creditors," the people and organizations that the business owed money to. The creditors are generally unhappy, because they don't get enough money to cover the full cost of the debt, but at least they get something.

Bankruptcies may be either "voluntary" or "involuntary." A "voluntary bankruptcy" happens when the business owner realizes that he or she doesn't have enough money to cover the debts and declares bankruptcy. An "involuntary bankruptcy" happens when the creditors file the petition for bankruptcy because they believe this is the best way for them to get at least some of their money back.