Many big corporations suffered big financial loses during the 2008 recession, and filed for bankruptcy. This article focuses in brief, on things you need to know while filing a chapter 7 or a chapter 11 bankruptcy.
In the year 2008, Wall Street witnessed the worst economic depression in recent history. While Merrill Lynch was taken over by Bank of America, Lehman Brothers had to file for bankruptcy protection. These events proved that big corporations are just as susceptible to failure as any other business. Since then, the economy has recovered gradually, and is now functioning at a steady pace. But it is very important that we are informed about corporate bankruptcy, and the laws pertaining to it, so that we are able to deal with bad debt and tough recessions, if ever they may occur.
To avoid bad debt and sail through tough times, corporate bodies can file for a chapter 7 or a chapter 11 bankruptcy. Let’s see what they have to offer:
Chapter 7 Bankruptcy
Corporate bankruptcy filings associated to chapter 7 help corporate bodies who don’t have any pragmatic way of dealing with their unpayable debts. This type of filing is meant for companies who wish to shut down, and disengage from all their operations. The bankruptcy court appoints a trustee who manages to sell the assets of the company. The money generated by these sales is then used to repay the company’s creditors.
Since most corporate companies rely heavily on investors, care is taken by the court that all secured creditors and shareholders are paid their share of money from the sales. The investors who took the most risk are paid first, followed by bondholders. Shareholders, who get the maximum profit if the company profits, are paid last, but before the owner of the company. When a company files for bankruptcy, the interests of the owner are considered last.
Chapter 11 Bankruptcy
If a corporate body doesn’t wish to shut down its activities, it can file for a chapter 11 bankruptcy. This filing provides the company with an opportunity to work with the bankruptcy court in order to rebuild its business. Some prominent companies like General Motors and Chrysler filed for chapter 11 bankruptcy in 2009, and recovered fairly well.
Filing for bankruptcy, as stated by bankruptcy lawyers, must be an organization’s last resort. Companies seeking consultation for filing a corporate bankruptcy must research and hire good bankruptcy counselors and lawyers, so that the filings can be handled carefully.