Chapter 7 of the United States Bankruptcy Code governs liquidation procedures. The companies that deal in solvents may also file for Chapter 7, although this is not common. Chapter 11 bankruptcy, for example, involves the rehabilitation of the bankrupt company and the restructuring of its debts; not all bankruptcies result in the liquidation of the firm. In the event that outmoded inventory is liquidated, underperforming locations are closed, and applicable debts are reorganized, the corporation will continue to operate as a Chapter 11 entity.

When a Chapter 7 bankruptcy is filed, personal obligations are discharged, but corporate debts remain after a Chapter 11 bankruptcy is filed. The debt will remain on the books until the statute of limitations has expired, and since there is no longer a debtor who is obligated to pay, the creditor must write off the obligation as a bad debt.