This is not the same as its debts being discharged, as happens when an individual files for Chapter 7.
The debts still exist in theory, at least until the statute of limitations has expired, but there is no debtor to pay them, so they must be written off in practice.
When a company’s assets are liquidated, or converted to cash, the cash is then used to pay off creditors.
The company’s operations are brought to an end, and its assets are divvied up among creditors and shareholders, according to the priority of their claims. Not all bankruptcies involve liquidation; Chapter 11, for example, involves rehabilitating the bankrupt entity and restructuring its debts.
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To liquidate is to convert stocks or goods into cash by selling them, to finish business neatly, and to clear debts.
If you liquidate your old baseball card collection, you will have money to put in your college fund.