Posts Tagged ‘chapter 11’

Chapter 7? Chapter 11? What kind of book is this?

Friday, June 3rd, 2011

Lately, the economy’s troubles have people talking about Chapter 7 and Chapter 11 so often that you might think they’re part of a new bestseller. In fact, Chapter 7 and Chapter 11 are two different chapters of the U.S. Bankruptcy code. They explain two different ways you can file for bankruptcy.

If a company files for bankruptcy under Chapter 11 – “rehabilitation bankruptcy” – it tries to make some changes and then get running again. Basically, the company can’t ignore the money it owes creditors, but it can do things like negotiate a lower interest rate, making it easier to try to pay the money back. If it’s successful in Chapter 11, the company can keep working like usual.

But if there’s is no hope for a company to fix itself, it files for bankruptcy under Chapter 7 – “liquidation bankruptcy” – and the entire company is, well, liquidated, meaning that it is broken up into pieces and sold. A company that files for Chapter 7  is in such bad shape that they can’t do anything but sell their assets. The people who lent the bank money then wait in line to collect debts, based on when they loaned their money to the company in the first place.

From the business owner’s point of view, bankruptcy is a kind of chapter in a scary novel. (But hopefully not the final chapter.)

BP’s Forecast: Cloudy At Best

Tuesday, June 8th, 2010

Bankers, lawyers, and Wall Street are all anticipating the oil superpower’s next move. The consensus? Bankruptcy.

  • Between the rapidly declining value of BP shares, the cleanup costs, and the anticipated lawsuits from gulf fisherman and tourism companies, it seems likely that BP is being primed for a takeover.
  • Who’s interested? Both Shell and Exxon have the means to buy BP, and bankers believe now is the time to strike. Only problem is how to separate the deal from all the legal exposure.
  • BP’s chief executive, Tony Hayward, insists that BP will foot the whole bill.
  • According to the Oil Pollution Act of 1990, BP’s financial responsibility for the cleanup is capped at $75 million. But if it’s determined that safety regulations were violated (which is very likely), the cap is no longer relevant.

Facts & Figures

  • BP has lost more than a third of its value since the Deepwater Horizon catastrophe.
  • BP generated nearly $17 billion of profit last year.
  • One estimate of the BP cleanup bill is more than $40 billion.
  • If a court rules against the company, the cost of the spill could skyrocket into the hundreds of billions, almost guaranteeing the end of  BP.

Best Quote

“The strength of cash-flow generation in recent quarters has provided us with a balance sheet that allows us to fully take on the responsibility for the Gulf of Mexico response.” – Tony Hayward, Chief Executive of BP

Bankruptcy is…

Thursday, August 20th, 2009

Bankruptcy is a legal procedure which occurs when a company in debt is unable to make the payments it owes and therefore the assets of the company are distributed to the creditors. Filing for bankruptcy can be either voluntary or involuntary but is an indicator that a company cannot raise enough money to repay the debt without selling its assets.

Individuals can also file for bankruptcy for basically the same reason: they have more debt than they can reasonably repay. When you file for bankruptcy, your debts are either forgiven or reorganized into a viable payment plan. A declaration of personal bankruptcy will remain on your credit record for seven to ten years.