Posts Tagged ‘chapter 7’

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.)

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.