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ÿþFiling for Chapter 11 Bankruptcy Instils Hope For Corporations In Financial Difficulty

Chapter 11 bankruptcy is especially suited to companies who somehow find themselves in financial turmoil and left with no alternative but to file for bankruptcy. When corporations file for Chapter 11 bankruptcy, it enables the bankruptcy court to order creditors to stop pursuing the corporation for the debts that are owed.

Financial Mismanagement

The reason most corporations find themselves filing for Chapter 11 bankruptcy is usually because they have not managed their finances very well causing debts to mount up to unmanageable levels. The corporation is therefore left in an unstable position and unable to pay it debts. When a corporation files for this type of bankruptcy, the court will appoint a trustee who will look at the debts and assets that the corporation has and will attempt to give some relief to the creditors as quickly and efficiently as possible.

Corporations seeking Chapter 11 bankruptcy are required to go through the same procedures that apply to individuals who file for bankruptcy under Chapter 7 and Chapter 13.

The difference with Chapter 11 bankruptcy and other forms of bankruptcy is that a company can be forced by its creditors to file for bankruptcy and further to this, once the process has started, the court will take control of the finances of the corporation and assist the creditors in retrieving what is owed to them. The main advantage for a company filing for Chapter 11 is that they can continue their operations as normal. The advantage to the creditor is that unsecured debts will at least be partially paid back instead of discharged completely as is the case with Chapter 7 reduncancy.

The basis of this kind of bankruptcy is that it assists creditors with increasing their chance of reaching a satisfactory resolution in their quest to retrieve their money and the corporation can also work at creating revenue whilst their finances and assets are handled by the court.

There are other downsides to filing for Chapter 11 bankruptcy and if a corporation s debts amount to more than their assets it will mean that the company shareholders will not receive any money until the bankruptcy process is complete. What this means for shareholders is that the rights they had over the corporation s assets are taken away during the bankruptcy process. All shares will effectively be frozen until a satisfactory resolution has been reached and the corporation s creditors have been reimbursed.

The reasons that a corporation might want to file for Chapter 11 bankruptcy are many.

It may be the easiest way out for most companies and This type of bankruptcy is not without its critics and many are passionate against permitting corporations to escape when they file bankruptcy. However, this form of bankruptcy is still prevalent in the corporate world. Even larger companies are not immune to the perils of financial mismanagement and big names such as K-Mart and WorldCom have recently been forced to file for Chapter 11 bankruptcy.

This entry was posted on Thursday, July 9th, 2009 at 3:47 pm and is filed under Bankruptcy. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.

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