Business bankruptcy is a process designed to help a struggling business eliminate or repay its debts under the protection of the bankruptcy court. Depending on the type of bankruptcy filed by a business, business bankruptcies end in either liquidation or reorganization. There are three types of business bankruptcies that exist: chapter 7, chapter 13, or chapter 11.
In chapter 7 bankruptcies case, a company stops all operations and goes completely out of business. A trustee is appointed to liquidate the company's assets (split it among lenders) in order to pay off the business's debt. In essence, chapter 7 bankruptcies mean that the business is over. Only a sole proprietor can be formally discharged at the end of a chapter 7 bankruptcy; corporations and partnerships do not receive a discharge. This form of business bankruptcy is best for businesses that are overwhelmed with debt and is unable to be restructured.