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Bankruptcy and its clauses

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Published: 26Oct2009
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A business when distressed by constant horrific financial recessions. It tries to secure itself by filing bankruptcy, because at times it provides a complete relief from over burdened debts. This has been a case for many US companies from last few years even for some big names. Over 20 big names filed for bankruptcy last year including Lehman Brothers Holdings Inc., Washington Mutual, Inc., Circuit City Stores, Inc, and Hawaiian Telecom Communications, Inc.

The bankruptcy filed by these companies is the greatest in US history like alone Lehman Brothers Holdings Inc accounts for $613 billion. What is purpose of such financial institutions of being declared bankrupt or in other words what are the financial benefits these firms can enjoy by filing themselves for bankruptcy? There are many advantages and disadvantages of declaring bankruptcy under law.

A distressed business may file bankruptcy when it is unable to meet its financial obligations under the Chapter 7 and 13 of the Title 11 of the United States bankruptcy Code. The bankruptcy under this chapter 7 is also known as liquidation as it accounts for sale of personal assets. The concerned business stops operating and a trustee is appointed by the court of law to further sell the assets and pay the creditors. Such bankruptcy allows for a fresh revival of one's energy and finance into a new business. Bankruptcy asks for automatic stay, in which the activities of the creditors are ceased by law, they are bound to contact you, or send any legal notice. If they keep on bothering a bankrupt, he /she may pay a fine in court.

Bankruptcy under chapter 7 is beneficial for those who have little or no personal assets, because bankruptcy under this chapter accounts for sale of personal property like home, car, mobile or other valuable possessions under one's ownership. However a person has an option of choosing between what debts to file for bankruptcy like unsecured debts (debts including credit cards at most) or secured debts. Another way of declaring oneself for bankruptcy is under chapter 13, title 11 USA. Under this chapter the debtor prepares a plan and schedule to pay the debts outstanding within the period of 3-5 years.

It is beneficial for the debtor, as creditors cannot claim debtors directly, debtor can keep its personal assets and he pays less than the full amount he can keep his ownership, can earn regular income. If you hold large amount of property then this the most viable solution as it ceases the foreclosure. Bankruptcy is also a safe option for the employee of the bankrupt firm still they have a choice to work with the same organisation because of his contract, which the new ownership cannot breach under law.

Bankruptcy also allows for many potential disadvantages as well. First of all the debtor loses its credit rating for future years. As bankruptcy stays on one's account for ten years. Then a lifetime stigma is attached to a bankrupt concerning its future finance plans. Filing bankruptcy at times seems like a finance crash down. However in the end it accounts for complete reestablishment, and enables a business to learn from past and stand on much sound foundation.

Matthew Williams. Business finance for expansion, investment funding, leasing, purchase or refinance and Government and commercial loans for actual.

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