Bankruptcy is a legal procedure which occurs when a company in debt is unable to make the payments it owes and therefore the assets of the company are distributed to the creditors. Filing for bankruptcy can be either voluntary or involuntary but is an indicator that a company cannot raise enough money to repay the debt without selling its assets.

Individuals can also file for bankruptcy for basically the same reason: they have more debt than they can reasonably repay. When you file for bankruptcy, your debts are either forgiven or reorganized into a viable payment plan. A declaration of personal bankruptcy will remain on your credit record for seven to ten years.