[meg_cat]

I am reading Iaccocca which talks about bankruptcy and its concequesces.

I had about it before in John Grisham's The king of Torts wherein the main guy just declares bankruptcy and flies to florida with his wife.

But the whole lotta concept is not clear.

Why not share our knowledge and clear doubts.

[RagnRoll]

ya, nice idea. moi an engineer. will be interested in
knowing more. hey puys with a commerce background,
plz pour in.

[Great_II]

American Bankruptcy Laws:
Chapter 7:Total Liquidation of assets
Chapter 11:(Individual)If your unsecured and secured loans meet some criteria then you are given a Legal Backing to come up with a plan to pay back the loans within 18 months
Chapter 12:(Farmers)Same as 11 2-3 times in the last 100 years
Chapter 9:(for a City/Govt. Org)one once in history
Chapter 13:(Firm)If your Unsecured Loans are under 210,000US$ and Secured Loans 900,000 then you can apply for this and you get Legal Backing to Form a plan to repay within 18 months.

Bharteeye Bankruptcy:Its a messy world of Cheating and getting Ruined....
A Liquidator /Officer is assigned who takes care of your Assets and Liabilities.
Please Checkout Google.com(a sponsor I guess for further Queries)

[meg_cat]

Following are some details that I got from the web -

part 1

Why Companies/Individual file For Bankruptcy?


All of the different kinds of corporate bankruptcy amount to the same problem -- a company has more debt than it can pay. In this situation, a company files for bankruptcy. This gives it legal protection from its creditors. The company can either get out from under the debt or work out a repayment plan and continue operating. A bankruptcy filing prevents creditors from trying to collect on debts outside the process of the bankruptcy filing itself.

What circumstances lead a company to file for bankruptcy?
1. Sometimes debt grows over time until the business owners realize they have no hope of paying it off.
The 2002 bankruptcy of Kmart is an example of this. Competition from other discount store chains led to a steady decline in sales, and the company began missing payments to their suppliers .

2. Companies sometimes face a sudden loss of revenue that prevents them from paying their suppliers. For example, a printing company might draw 30 percent of its revenue from a single publisher. If that publisher moved its contract to a different company, the printer would lose almost a third of its revenue. However, it would still have to pay employee wages, health care plans, taxes, suppliers and all of its other bills.
A sudden, massive financial loss can result in instant debt without the revenue to pay for it. This is often the result of some wrongdoing on the company's part. A lawsuit or government fines can cost a company millions or billions of dollars. Scandals can also cause stock prices to drop.

3. Creditors can also force a company into bankruptcy. They might do this if they discover that the owners are selling off all of the company's assets and preparing to dismantle the company without paying their debts. A creditor might also force a bankruptcy if the company is already making large payments to a different creditor.
Bankruptcy Basics

Although bankruptcy is complicated and the exact steps can vary from state to state, each chapter of bankruptcy uses the same terminology and follows the same basic process.
Two main parties are involved in bankruptcy filings -- the debtor and the creditor.

Debtor: The party who has debt, or owes money, to the creditor. A debtor can be a company or an individual.
Creditor: An organization or company that claims the debtor owes property, service, or money. Most bankruptcy cases involve several creditors.

Debtors can have two different types of debt – secured and unsecured.
Secured debts, creditors have the legal right to something of yours if you fail to make the proper payments. Your mortgage, for example, is a secured debt. By loaning you the money to pay for your house, the bank gets a lien on it. If you stop making mortgage payments, the bank can foreclose and take possession of your house.
Secured creditors are always paid first in a bankruptcy settlement.


Unsecured debt is debt without any collateral. The creditor can't take possession of anything owned by the debtor in the event of unpaid debts.
Unsecured creditors have the lowest priority among creditors who are trying to collect payments in a bankruptcy proceeding.

1. When a company files for bankruptcy, creditors must stop all attempts to collect the debt. This is an automatic stay.
2. Then the bankruptcy court appoints a trustee to handle certain aspects of the bankruptcy. In a liquidation proceeding, the trustee takes over the assets of the debtor, sells them off, and uses the proceeds to pay creditors.
3. In a reorganization proceeding, the trustee acts as a go-between for the debtors and the creditors. The debtor makes regular payments to the trustee, who divides the funds between the various creditors involved.
Some of the debtor's assets are exempt from liquidation and seizure. For an individual, these assets are the bare minimum needed to survive, such as clothing and appliances.

4. Once the creditors are paid by the trustee (or a payment plan is established), the debt is discharged. Even if the creditors did not receive the full amount originally owed to them, they can no longer attempt to collect money from the debtor

[meg_cat]

Types of Bankruptcy

The four types of bankruptcy are named for their respective chapters in the United States Bankruptcy Code. The type of bankruptcy that you file depends on several factors, including whether or not you are an individual or part of a corporation.

Chapter 7 is what most people mean when they say, "I'm filing for bankruptcy." This is a liquidation bankruptcy, which means that the trustee sells off all non-exempt assets held by the debtor so that the debts can be repaid to the fullest extent possible. Individuals, corporations and partnerships are all eligible for Chapter 7 bankruptcies. The portion of the debt that can't be repaid through liquidation is discharged. Businesses generally try to avoid Chapter 7, because it is impossible to conduct business operations. Income generated after the bankruptcy filing is not a part of the bankruptcy -- the debtor can keep it.


Chapter 11 is the most complex bankruptcy filing and the one that most troubled businesses file (although some individuals may file it as well). In a Chapter 11 bankruptcy filing, the debtor continues to function, maintains ownership of all assets, and tries to work out a reorganization plan to pay off creditors.

Chapter 12 is specifically for farm owners. The debtor still owns and controls his assets and works out a repayment plan with the creditors.

Chapter 13 is like Chapter 11, but for individuals. The debtor retains control and ownership of assets. He also works out a three to five-year repayment plan. Some portion of the debt may be discharged, depending on the income of the debtor. There are also limits on the amount of debt involved.
Chapter 11

Companies choose to file Chapter 11 because its long-term revenues will be higher than the liquidation value of the assets. This way, creditors can get more money back if they allow the debtor business to reorganize and work out a payment plan.

The business becomes a debtor in possession, maintaining control and ownership of their assets and continuing their regular operations. At this point, there is usually no trustee.
A company that declares Chapter 11 must disclose all of its assets and make a list of all the debts that it is seeking protection from. This is the creditors' right to question the debtor, a fundamental part of bankruptcy law. In cases involving millions or billions of dollars, this step alone can be incredibly complex. The creditors also meet with the debtor.
If the bankruptcy court finds that there has been fraud or gross mismanagement on the part of the debtor, they can appoint a trustee, who will take over the operations of the debtor for the duration of the proceeding.

The business continues to operate as normal, but the original owner is no longer in control. While federal bankruptcy courts are in charge of the proceedings, the Department of Justice also assigns a U.S. Trustee to each district. The U.S. Trustee serves as a watchdog over bankruptcy cases and may act as the trustee in a proceeding.
While under Chapter 11, a company can only make the usual sales and purchases that are part of its standard business operations. For example, it can't buy out another company, sell off a division of the company, or sell a major piece of equipment or property without approval from the court. It can't undergo a major expansion, either.

In all Chapter 11 proceedings, a creditors' committee represents the majority of the unsecured creditors, and negotiates the best possible payment options for them. Large-scale cases may have multiple creditors' committees, each representing different groups and factions of the creditors. Stockholders can also form a committee.

At this point, the debtor formulates a plan to reorganize its debts. This plan can be a simple as a payment plan. With larger bankruptcies, companies may take many steps to reorganize their debt. They might offer stock to some creditors. A retail business might have to close stores, lay off employees, or renegotiate union contracts. One of the major provisions of Chapter 11 allows a company to void many of its contracts, including union contracts, contracts with suppliers, and real estate leases.

Once the debtor submits a reorganization plan, the creditors and the company's stockholders vote on it. Stockholders are generally very low in terms of priority, and even if they vote down the plan, the court can go ahead with it if the creditors approve. Once the court approves the plan, the Chapter 11 bankruptcy is certified and confirmed. Now the debtor must comply with the plan and make the proper payments to the creditors (or to the trustee, if one has been appointed).
It is important to note that during the period of reorganization, the company's stocks will be virtually worthless. If the company gets out of Chapter 11 and begins operating normally, those stocks can increase in value, but at first they will probably be worth much less than the initial purchase price. Bondholders can sometimes get a fraction of the bonds' face value as part of the reorganization.
If a debtor violates the terms of the plan, there are several potential consequences. A trustee may be appointed. If it appears that the company will not be able to operate profitably and follow through with repayment plans, the Chapter 11 will be converted into Chapter 7. This is a death sentence for the company.

No one ever goes to jail for being in debt. This is easy to overlook when many high profile corporate bankruptcies follow financial crimes committed by executives or accountants. Financial fraud can lead a company to bankruptcy, and the executives may be prosecuted, but bankruptcy itself is not a crime.

[MasterOfBiz]

Originally Posted by meg_cat

Types of Bankruptcy

The four types of bankruptcy are named for their respective chapters in the United States Bankruptcy Code. The type of bankruptcy that you file depends on several factors, including whether or not you are an individual or part of a corporation.

Great work buddy.

[meg_cat]

If u know more of this, share your knowledge ...