A company is unable to pay its debts to its creditors. It files bankruptcy to free it from its financial obligations while it reorganizes and works out a payment plan with its creditors. During the bankruptcy proceedings, the company continues to operate, and it sells off some assets to raise cash to pay off its immediate obligations. Which type of bankruptcy does this scenario best describe?

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In this scenario, the company is filing Chapter 11 bankruptcy. This type of bankruptcy temporarily frees a business from its financial obligations while it reorganizes and works out a payment plan with its creditors. The indebted company continues to operate its business during bankruptcy proceedings. Often, the business sells off assets and less-profitable subsidiaries to raise cash to pay off its immediate obligations.

A Company Is Unable to Pay Its Debts to Its