Legal proceeding initiated when individual or company who is unable to pay their debts.
The process is most commonly started by the debtor. All the assets are tallied and may be used to repay the debt.
In bankruptcy of a publicly owned entity, the ownership of the firm's assets is transferred from the stockholders to the bondholders.
Chapter 7 : Done when there are few assets. The debtor is selling off assets to pay outstanding debt.
Chapter 11: Reorganization. The company has assets it wants to protect and is looking to stay in business.
Chapter 13: Same as Chapter 7 but for those who make too much money.