What happens to a company's debt when it goes bankrupt?
What happens to a company's debt when it goes bankrupt? Is it erased or does someone else have to take responsibility for paying it off? Tim Cella used to work at several law firms I’ve been involved in several different bankruptcy cases with a business lawyer . I’ll try to explain as best as I can. When a company goes bankrupt in the United States, what happens to its debt depends on the type of bankruptcy filed and the specific circumstances of the case. In general, bankruptcy provides a legal framework for managing debts that a debtor cannot repay. There are several chapters of bankruptcy in the US, but the most common ones for businesses are Chapter 7 , Chapter 11 , and Chapter 13 . 1. Chapter 7 Bankruptcy : In Chapter 7 bankruptcy, also known as liquidation bankruptcy, the company's assets are sold off to repay creditors. Any remaining debts that are eligible for discharge are typically erased. However, it's essential to understand that not all ...