How do companies get out of bankruptcy?
Bankruptcy is a serious business decision, and it is critical that companies learn how to recover from it as quickly as possible. The process involves several steps. For example, a company may need to make significant layoffs to improve its financial position. It may also need to streamline divisions and develop a flatter organizational structure. A restructuring strategy might also require the company to shed excess overhead and shut down facilities. This will result in lower operating costs and a more concentrated focus on the most profitable areas.
Chapter 7 bankruptcy
If your company is in trouble, Chapter 7 bankruptcy can help you get out of debt and back on your feet. In Chapter 7 bankruptcy, your company's assets are liquidated by a trustee, who distributes the proceeds to creditors in a fair and timely manner. You will not have to pay creditors until they are paid in full, and this will ensure that you don't lose money.
While the process is lengthy, it will allow your company to recover a significant portion of its assets. As a sole proprietor, you don't have to give away everything, though. Most states have specific bankruptcy exemptions that allow you to keep certain items. Generally, this includes personal property that you use on a daily basis. Obviously, luxury items like a car or a new couch will not be exempt. You might also be able to keep some business property, but it must be essential for the operation of the business.
Liquidation bankruptcy
When a company files for liquidation bankruptcy, it means it is unable to continue operating. The process of liquidation involves selling off its assets and distributing the remaining funds to claimants. Once the process is complete, the company no longer exists. The process also allows preferred stockholders to receive a higher percentage of the remaining assets.
Recently, two major retailers filed for bankruptcy: JCPenney and Sears. These cases highlight the plight of modern-day retail, which is facing challenges due to massive debt and inefficient operations. Adding to the burden were the Covid-19 pandemic and the lack of foot traffic at department stores. This shifted shoppers to online shopping, further hampering the ability of retail companies to survive.
Reorganization bankruptcy
A reorganization bankruptcy is an option for companies that have failed to recover their financial standing and are in need of a fresh start. Reorganization helps companies come out of bankruptcy by offering creditors a new opportunity to recover their debt. Instead of liquidating the company, creditors can negotiate for equity stakes in a new firm. These stakes can rise over time and become more valuable than the proceeds of liquidation.
When filing for reorganization bankruptcy, companies should make sure that the reorganization plan meets the requirements of the "best interests of creditors" test. For example, in United States v. Reorganized CF& Fabricators of Utah, Inc., a creditor must receive an amount equal to his or her share of the company's value if he or she accepts the plan. In addition, creditors must be able to meet their tax obligations in the five years following the bankruptcy filing.
Reaffirmation account
A reaffirmation is a debt repayment arrangement in which the debtor agrees to continue to pay the debt after the bankruptcy case has ended. If the debtor fails to make payments, the lender can take the collateral and sue for the deficiency. Without a reaffirmation agreement, the debtor is not responsible for making those payments, and the lender is not allowed to take the collateral.
However, some lenders violate the terms of reaffirmation agreements by taking action that can result in legal action. This can happen when a lender engages in fraud or misrepresentation, or even coercion. Regardless of the reason, bankruptcy can be very beneficial if a debtor needs to keep a car or house and cannot pay it off. A reaffirmation agreement must be approved by a judge.
If you have any questions, you can get a free consultation with Ascent Law LLC:
Ascent Law LLC:
8833 South Redwood RoadSuite C
West Jordan, UT 84088
(801) 676-5506
