Understanding a Corporate Bankruptcy

We are facing one of the bleakest economic states in history. Unemployment is at an all time high and the values of homes are eroding away along with the value of retirement accounts such as 401ks. This recession is really taking its toll. The big three automobile manufacturers are on the brink of disaster. It would appear that they will be forced to file for bankruptcy protection if they are not successful with their pleas on Capitol Hill for bailout help.

What exactly will happen if they are faced to file for bankruptcy protection? Bankruptcy is a process where an organization has to file for protection from its creditors because it is not able to meet its obligations. This helps to protect the organization from legal action initiated from its creditors that it could not pay.

First of all there are two options that a corporation can take when it decides to file a petition for bankruptcy. It can decide to file for chapter 7 or chapter 11. If a corporation files for a chapter 7 bankruptcy it would have to immediately stop operations and then it would also have to liquidate all of the assets that it has on hand. During the next step in the bankruptcy filing the Corporation must sign over ownership to a bankruptcy attorney, who is then responsible for stopping all of the operations within the corporation, and then selling all of the assets and disbursing the proceeds among the creditors. Secured creditors or those who have some type of security get paid first before the unsecured creditors.

The other type of bankruptcy petition is the chapter 11, which is the type that the big three, Ford, GM, and Chrysler would file, if it came to that. During a chapter 11 bankruptcy any corporation is able to continue doing business as usual and, at the same time, obtain some relief either full or partial from its creditors while it attempts to reorganize or restructure. The corporation is given the opportunity to restructure its debt with creditors and if the plan is accepted by the bankruptcy court and their creditors approve then the plan can go forth, which means it is once again binding to the corporation.

However if the corporation cannot come up with a plan that satisfies all of its creditors then the most likely step would be chapter 7 bankruptcy. If a corporation files for bankruptcy relief the bankruptcy court will step in so that the corporation does not have to honor all of its legally binding contracts such as labor agreements, leases, and contracts in relation to operations at least not immediately.

In this kind of situation, it is crucial to hire a bankruptcy lawyer like bankruptcy attorney san diego california who you can trust and rely on. Surely, with your lawyer’s experience and knowledge about the legal process, he or she will be able to support you all through out the bankruptcy.

If a corporations does file for bankruptcy protection it plays havoc with the organizations stock reducing the value of it substantially.

Brian Singleton a retired news editor and tech enthusiast. He shares a deep love for science and technology and wishes to connect with others through this his content.

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