In very simple terms, Chapter 11 and Chapter 13 bankruptcies are sought by businesses (11) and individuals (13) whose cash flows are insufficient to service their existing debt. The goal of a Chapter 11 or 13 bankruptcy is for a business or individual to re-organize their debt, such that all or most of the debt is repaid according to a schedule set by a judge, which schedule gives the debtor more time to catch-up on its debt. A Chapter 7 bankruptcy is used to eliminate all of the debt in the case where a debtor is far too insolvent to ever realistically catch-up. In this case, the debtor is liquidated (all but a few protected assets are sold), and creditors generally only collect a fraction of the amounts owed to them. Please keep in mind that this is an oversimplified explanation and that bankruptcy law is extremely complex and often undergoes substantial change.
As a title company representative, finding out that a seller is involved in a bankruptcy often raises concerns about insurability. Regardless of the type of bankruptcy, property CAN be sold out of a bankruptcy upon approval of the court. In that respect, the bankruptcy court is not much different than a lienholder whose release needs to be coordinated with closing; however, the approval of the court could take as long as 90 days to obtain, which will delay a closing much beyond that of a non-bankruptcy sale.
