Bankruptcy

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Reuters  Apr 14  Comment 
The number of bankruptcies among publicly traded U.S. companies has climbed to the highest first-quarter level for five years, according to a Reuters analysis of data from research firm bankruptcompanynews.com.
MarketWatch  Apr 14  Comment 
Company retains option to sell Oncor stake, still plans to spin off Texas Competitive
OilVoice  Apr 13  Comment 
On Sunday night Gunvor Group informed the company that it had filed an application for bankruptcy of PA Resources AB. The company has not yet been officially notified by Stockholm District Court. Due
New York Times  Apr 10  Comment 
A man at a hearing in a fraudulent bankruptcy opened fire in a Milan courthouse on Thursday, killing a judge, a lawyer and a co-defendant and wounding at least two others.
TheStreet.com  Apr 9  Comment 
NEW YORK (TheDeal) -- Caesars Entertainment  will once again have to provide reasons for not agreeing to an involuntary bankruptcy petition filed by certain junior lenders ahead of its voluntary petition. Judge A. Benjamin Goldgar of the...
Wall Street Journal  Apr 8  Comment 
EveryWare Global, maker of Anchor Hocking and Oneida kitchen products, filed for Chapter 11 protection Tuesday with plans to implement a debt-for-equity swap with senior lenders.
New York Times  Apr 6  Comment 
In 1975, New York was on the brink of default, and Mr. Gotbaum, as the main negotiator for the city’s unions, helped City Hall and creditors reach a compromise.
WA Business News  Apr 2  Comment 
Financial services provider Pioneer Credit has sold $3.1 million worth of bankruptcy-comprised customer accounts if felt could not generate any further value, but none of the proceeds will be contributing to the company’s full-year profit.
Reuters  Apr 1  Comment 
As the U.S. Supreme Court on Wednesday considered the case of a Massachusetts homeowner battling his mortgage lender over a bankruptcy plan, several justices focused their attention on his unlikely ally: Bank of America Corp.
Wall Street Journal  Apr 1  Comment 
Struggling oil-and-gas producer Samson Resources Inc. said, in a filing on Tuesday, that Chapter 11 bankruptcy protection might offer the best route to restructuring its heavy debt load.




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"Bankruptcy" is the legally declared inability of an individual or organization to pay its creditors. When a company files for bankruptcy, they do so in Federal Court under the Bankruptcy Code. Creditors may file an "involuntary bankruptcy" petition against a debtor in an effort to recoup what they owe. However, in most cases, bankruptcy is initiated by the debtor, and this is called "voluntary bankruptcy".[1]

To file for bankruptcy, one must always include [2]:

  1. A schedule of assets and liabilities
  2. A schedule of current income and expenditures
  3. A statement of financial affairs
  4. A schedule of executory contracts and unexpired leases


Types of Bankruptcy

Chapter 7

Chapter 7 bankruptcy is also known as liquidation bankruptcy and is governed by Chapter 7 of the Bankruptcy Code.

Any individual, partnership, or corporation can qualify for Chapter 7 bankruptcy. However, in order to qualify, one must have received credit counseling from an approved agency. [3]Firms filing this form of bankruptcy are past the stage of reorganization and must sell off all un-exempt assets to pay creditors. The creditors collect their debts according to the seniority of their debts. A trustee is appointed, who ensures that any assets that are secured are sold and that the proceeds are paid to the specific creditors.

For example, secured debt would be loans issued by banks or institutions based upon the value of a specific asset. Whatever assets and residual cash remain after all secured creditors are paid are pooled together to be paid to any outstanding creditors with unsecured loans: e.g. bondholders and preferred shareholders.

Keep in mind that only an individual debtor (as opposed to a corporation or partnership) may be discharged. In other words, an honest, individual debtor is eligible to lose all liability for a given debt so that he or she may be given a "fresh start." [4]

Chapter 11

A chapter 11 bankruptcy, governed by Chapter 11 of the Bankruptcy Code. allows the company to stay in business while a bankruptcy court supervises the "reorganization" of the company's contractual and debt obligations. The court can grant complete or partial relief from debts and contracts, allowing the company can make a new start.

Chapter 11 bankruptcy doesn't put personal assets of those involved with a given corporation (other than their stock within the company) in danger. However, if the debtor is an individual, both business and personal assets will be involved. If the company filing is a partnership, the lines are slightly blurrier—in some cases the individual partners' personal assets may be at stake. [5]

Often, if the business's debts exceed its assets, then at the completion of bankruptcy the company's owners all end up without anything; all their rights and interests are ended and the company's creditors are left with ownership of the newly reorganized company.

Chapter 11 bankruptcies can be extremely complicated and expensive (in terms of legal and consulting fees) for an organization.


Chapter 13

Chapter 13 allows individuals to undergo a financial reorganization supervised by a federal bankruptcy court. The Bankruptcy Code anticipates the goal of Chapter 13 as enabling income-receiving debtors a debtor rehabilitation provided they fulfill a court-approved plan. This is in contrast to the goals of Chapter 7 that offers immediate, complete relief of many oppressive debts.

However, Chapter 13 bankruptcy has a few advantages for individuals who chose this instead of Chapter 7. The largest of these advantages is the opportunity for an individual to save his or her home from foreclosure. In addition, individuals may be allowed to reschedule secured debts, and thus may give them the opportunity to lower their monthly payments. [6]

Further Reading

References

  1. Wikipedia, Retrieved September 15, 2008
  2. http://www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics/Chapter7.aspx
  3. http://www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics/Chapter7.aspx
  4. http://www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics/Chapter7.aspx
  5. http://www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics/Chapter11.aspx
  6. http://www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics/Chapter13.aspx
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