Liquidation & Bankruptcy

Liquidation is a process by which a company ceases its operations and sells off its assets to pay its creditors when it is unable to meet its financial obligations. This typically occurs when a company is insolvent, meaning its liabilities exceed its assets, and it has no feasible means of continuing its business operations. During liquidation, the company's assets, such as real estate, equipment, inventory, and intellectual property, are sold off, and the proceeds are used to repay creditors according to a predetermined hierarchy established by bankruptcy law.

Bankruptcy, on the other hand, is a legal process initiated by either the debtor or creditors to address financial distress. It provides a framework for managing debt and offers protection to debtors from creditor actions while they work to reorganize their finances or liquidate assets. Bankruptcy proceedings can lead to various outcomes, depending on the type of bankruptcy filed. Chapter 7 bankruptcy involves liquidation, where the debtor's assets are sold to repay creditors. Chapter 11 bankruptcy allows the debtor to reorganize its finances and operations under court supervision, with the goal of emerging from bankruptcy as a financially viable entity. Chapter 13 bankruptcy is designed for individuals with regular income, allowing them to develop a repayment plan to pay off their debts over time.

In summary, while both liquidation and bankruptcy are processes used to address financial difficulties, liquidation specifically involves selling off a company's assets to pay creditors, whereas bankruptcy offers legal protection and a structured approach to resolving financial distress.