For businesses, liquidation bankruptcy falls under Chapter 7 of the US bankruptcy code. Chapter 7 bankruptcy is also available to individuals. In Chapter 7, bankruptcy the business does not continue operating going forward. The company dissolves and ceases to exist.
In Chapter 7, a business converts its assets to cash, and the court assigns a trustee to divide the cash among creditors who receive a share based on their relationship to the company.
So-called “secured” creditors, those who issued credit backed by collateral, are prioritized for these funds. In many cases they receive only a fraction of what the debtor owes.
