But, what is bankruptcy? And what happens when a company declares bankruptcy?

In the US, there are several types of bankruptcy, for individuals as well as for companies. GM is filing under Chapter 11 of the United States Bankruptcy Code.

According to the US government website about the federal judiciary, Chapter 11 allows a company to reorganize itself in order to stay in business, while shielding it from immediate demands from its creditors. In this case GM will have to provide details as to how it plans to pay its creditors over time and how it plans to stay in business.

Once it has filed, the court will appoint a trustee to monitor the progress of the case and supervise its administration. It will be the trustee's job to monitor how GM carries out its reorganization and how it meets its requirements.

Unless the court rules otherwise, GM will remain in control of the business and its assets.

The filing comes because President Barack Obama's administration had given GM a deadline of June 1 to come up with a viable plan to restructure itself in exchange for more government aid.

The path to bankruptcy was cleared at the weekend when creditors, who hold 54 percent of GM's bonds, voted to approve the US Treasury's proposed restructuring plan.

It is hoped that GM will emerge from bankruptcy a leaner and more efficient company, with a smaller work force and divested of underperforming assets.

While bankruptcy is a temporary respite for GM, there is no guarantee that the automaker will emerge from Chapter 11 and be profitable once again.

av/dpa/Reuters/AFP
Editor: Chuck Penfold