A bankrupt firm is one that is unable on a nontemporary basis to meet its current debt obligations. In many countries, the bankrupt firm enters a formal procedure that bankruptcy law controls. Corporate bankruptcy law differs across countries, as do the problems attached to it.

In most countries, bankruptcy law permits a firm or their creditors to either liquidate or reorganize the firm. Some bankruptcy codes, for instance, in the United States and in Sweden, provide a separate procedure in bankruptcy for liquidation and reorganization. In other jurisdictions, for example, Germany, there is a single procedure. This entry focuses on those three countries because the laws are quite different and we have empirical evidence about the bankruptcy process.