How can bankruptcy affect business operations?

Bankruptcy can significantly affect business operations by leading to either liquidation or court-protected reorganization. When a business files for bankruptcy, it typically faces a critical financial situation where it can no longer meet its debt obligations. The bankruptcy process allows businesses to either liquidate their assets to pay creditors or go through a reorganization process under court supervision, which can help them negotiate new terms for repaying debts, restructure their operations, and attempt to return to profitability.

Court-protected reorganization allows the business to continue its operations while developing a plan to satisfy its creditors over time, which can preserve jobs and maintain business viability. In contrast, liquidation entails selling off assets to pay debts, resulting in a complete shutdown of the business. Therefore, bankruptcy does not always mean the end of operations; rather, it can offer a pathway for recovery and restructuring, helping businesses to emerge stronger in the future.