What Is Bankruptcy & What Does Going Bankrupt Means & When Does It Happens?
When a person owning a business fails to pay off their debt, they can file for Bankruptcy. Bankruptcy is a legal process & kind of an option available to the Businesses.
Why Do Companies Go Bankrupt? (In Simple Words!)
Well, the real reason the Companies go bankrupt is that they fail to pay there debt/loans they owe to the bank, investors & other people involved. Its usually, because of not having a good business structure or even failing to maintain it can result in a loss in the business. & the business loan which was supposed to be paid from the profit of the business is just not paid (as one have faced a loss in the Business)! Hence in order to get the money back the banks take the businesses to file for Bankruptcy!
Why File For Bankruptcy?
If a Business/Organisation have a lot of debt & is unable to pay it off. As their Business may not generating enough money to pay off debt then the best option left for the Business is to file for Bankruptcy. As it is a legal procedure! It'll help the Business to pay off his/her debt.
(Continue Reading.... To Know How Is Bankruptcy Can Be Helpful For Business/Organisations....!)
Who Files For Bankruptcy?
Usually the banks take the Company's to file for bankruptcy as per of not getting the principle promised back even after crossing the deadline. Because banks would face a lot of loss if they do not recover the amount. But sometimes or actually a lot of time it've been noticed that many Businesses have filed for Bankruptcy themselves!
The Company is anyways handovered to the bank because the loan was on/for the Business/Company. Right?
Where & How Can A Company File For Bankruptcy?
To file for bankruptcy you need to go to a court but remember there ARE SOME ADDITIONAL CHARGES for filing & also if you're hiring a lawyer then his/her pay will also be taken out of your own personal expenses!
It literally depends upon of from which country do you/your business belongs & where are you filing for bankruptcy!
Here I've given the links to 3 websites which are of 3 different countries! You can check these websites & read the guidelines & procedures required to work accordingly. These all look after the "BANKRUPTCY LAW IN THEIR OWN COUNTRY" (check there guidelines & procedures!
If you belong from some other country & don't know that what is the bankruptcy law called in your country & what are the rules then simply search on google " What is (your country name) Bankruptcy Code called? & After you get to know the name search ___________ rules!
Types Of Bankruptcy Chapters! (Basic!)
While one is filing for bankruptcy then he/she have to choose in between certain chapters depending on their Business structure & type. Different chapters works differently.
In the United States, the Chapters are: Chapter 7, Chapter 9, Chapter 11, Chapter 12, Chapter 13 & Chapter 15.
With Chapter 7 & Chapter 13 being the most common one's filed!
While in India, the Chapters are: Chapter 7, Chapter 13 & Chapter 11.
What Happens When A Company Goes Bankrupt?
Once a Company goes Bankrupt then as depending on the complexity of the case & the kind of chapter which have been filed. The Business may be liquidated! & in liquidation the assets of the company is sold and the money is obtained and returned to the people who owe their money! It can be Bond Holders OR NCD's Holders, Investors, etc. etc.
In simple words,
Liquidation basically means to sell all of the assets the business owns or any such thing which is owned by the Business/Organisation to pay off their debt!
But not all bankruptcies cases leads to Liquidation!
As I said different Chapters works differently!
Some chapters don't go for liquidation at all & instead they are more into restabling the Business.
In order to obtain the principle the Company can be liquidated, OR can request (as looked after) & also be appointed for solvency.
It is decided!
& if it's decided to pay off debt in Solvency then it may require more time while banks may face a loss!
I hope you liked gaining knowledge about Bankruptcy!
Chapter 7 is considered a liquidation bankruptcy: it doesn't require a repayment plan but the business has to sell some assets to pay creditors. Chapter 11 is considered a reorganization bankruptcy that allows businesses to maintain their operations while creating a plan to repay creditors.
or Chapter 11 bankruptcy if they're unable to pay their debts. Chapter 7 simply liquidates the company's assets, while Chapter 11 allows the business to continue to operate under a reorganization plan.
A chapter 7 bankruptcy case does not involve the filing of a plan of repayment as in chapter 13. Instead, the bankruptcy trustee gathers and sells the debtor's nonexempt assets and uses the proceeds of such assets to pay holders of claims (creditors) in accordance with the provisions of the Bankruptcy Code.
The three possible outcomes of bankruptcy are liquidation, reorganization and repayment. Chapter 7 reliefs the debtor through liquidation. In Chapter 11, a business can keep running while the company is being reorganized for the purpose of repaying the debt at least partially.
A chapter 7 bankruptcy terminates the company's operations and takes the company completely out of business. A trustee assumes control of the entity to ensure that creditors benefit from the maximum value of the debtor's assets. The order in which creditors are paid depends on their status as creditors to the debtor.
Companies can file for either Chapter 7 or Chapter 11 bankruptcy if they're unable to pay their debts. Chapter 7 simply liquidates the company's assets, while Chapter 11 allows the business to continue to operate under a reorganization plan.
Chapter 7 bankruptcy is a type of bankruptcy filing commonly referred to as liquidation because it involves selling the debtor's assets in bankruptcy. Assets, like real estate, vehicles, and business-related property, are included in a Chapter 7 filing.
A bankrupt company, the "debtor," might use Chapter 11 of the Bankruptcy Code to "reorganize" its business and try to become profitable again. Management continues to run the day-to-day business operations but all significant business decisions must be approved by a bankruptcy court.
Yes, even if a company is going bankrupt, you still have to pay what you owe them. Why? Just because a company is going bankrupt does not mean your debt is eliminated. If you have purchased goods or services from a company, you still owe them for what you received from them.
How does bankruptcy work? In a Chapter 7 business bankruptcy, the LLCs assets are sold and used to pay the LLC's creditors. After the bankruptcy, the LLC's remaining debts are wiped out and the LLC is no longer in business. The LLCs owners are generally not responsible for the LLCs debts.
When a company declares bankruptcy, its stock can end up being worth nothing. It's important to keep tabs on the companies you're invested in and consider selling your stock if you think a bankruptcy filing is imminent.
If you're a business owner and you file a personal Chapter 7 bankruptcy, you might be able to keep your business. But it could put the company in jeopardy. You'll lose the business if the Chapter 7 trustee can sell any of the following: the company itself.
So if a company owes you money and they have entered liquidation you'll need to file a claim with the liquidator, stating the amount you're owed, whether you provided goods or services, and also supporting documentation.
For some, there's just no escaping all of it. Certain debts will remain on your account when you file for Chapter 7 bankruptcy. You will still be responsible for alimony and child support.
For example, you can't discharge debts related to recent taxes, alimony, child support, and court orders. You may also not be allowed to keep certain assets, credit cards, or bank accounts, nor can you borrow money without court approval.
Unlike a Chapter 7 bankruptcy, in which the court requires a liquidation to pay creditors, a business owner may not lose assets or property. Congress designed Subchapter 5 for enterprises that could recover from a temporary financial setback.
What Is the Cheapest Type of Bankruptcy? Not only are the fees of Chapter 7 bankruptcy lower, but you also end up paying less to your creditors. While Chapter 7 only requires that you pay the value of your liquidated assets, a Chapter 13 bankruptcy could result in you paying far more over three to five years.
Introduction: My name is Edwin Metz, I am a fair, energetic, helpful, brave, outstanding, nice, helpful person who loves writing and wants to share my knowledge and understanding with you.
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