Bankruptcy
Bankruptcy
Bankruptcy is a legal status of a person or other entity that cannot repay the debts it owes to Creditors. It is initiated by the debtor, which allows for the discharge of debts under the protection of the bankruptcy court. Bankruptcy can help individuals and businesses eliminate or restructure their debts and provide a fresh start financially.
Types of Bankruptcy:
- Chapter 7: Often referred to as “Liquidation bankruptcy,” it involves the sale of a debtor’s non-exempt Assets to pay Creditors.
- Chapter 11: Primarily for businesses, it allows for reorganization and allows the entity to continue operations while paying off debts over time.
- Chapter 13: Allows individuals with regular income to create a plan to repay all or part of their debts over three to five years.
Examples:
1. A family unable to keep up with mortgage payments may file for Chapter 13 to save their home and restructure their debt.
2. A Corporation facing overwhelming debts may file for Chapter 11 to reorganize and continue operations while negotiating with Creditors.
Notable Cases:
1. General Motors (2009): Filed for Chapter 11 bankruptcy, which allowed it to restructure and emerge stronger.
2. Trump Entertainment Resorts (2014): Filed for Chapter 11 bankruptcy multiple times, illustrating the complexities of managing business debts.