Financial Difficulty Within Corporations
When corporations begin to face an uphill battle of financial troubles many are faced with a very difficult decision.
Corporations may select from one of two options when they become overwhelmed with their financial obligations.
They can choose to either initiate a chapter 11 reorganization or a chapter 7 liquidation.
Chapter 11 reorganizations give protection to the corporation from creditors'.
This allows the corporation to step back and look at their company to reorganize and make their company profitable again.
Filing for chapter 11 may be done voluntarily and submitted by the debtor or involuntarily and submitted by the creditors.
In order to file for chapter 11 you must pay a one thousand dollar filing fee along with a forty-six dollar administration fee.
Qualifying for chapter 11 must also be in the best interest of the creditors otherwise it may be dismissed.
Chapter 11 allows the debtor to continue in business while it arranges a plan of reorganization.
The plan must include all actions that the debtor expects to take during the reorganization period and how it will benefit creditors and debtors.
Creditors and other parties are given a disclosure statement which maps out the plan of the debtor.
The investor or creditor can then view the reorganization plan and vote accordingly based on how effective they believe the plan is.
A reorganization plan could be as straightforward as laying off workers, closing some stores, or even creating a payment plan.
Once this step is completed, the bankruptcy court steps in and weighs the responses from the creditors and other parties to determine whether the plan should be accepted or rejected.
The length of a chapter 11 reorganization varies depending on the difficulty of the reorganization.
Some reorganization plans can take a few months while others may take up to a year's time to complete.
A chapter 7 liquidation is defined as "A bankruptcy proceeding in which a company stops all operations and goes completely out of business.
A trustee is appointed to liquidate (sell) the company's assets, and the money is used to pay off debt.
" A Chapter 7 liquidation is enacted for the interest of the corporation's creditors and shareholders.
The goal of chapter 7 liquidation is to gain as much capital as possible by selling the debtor's assets.
A trustee is appointed by the bankruptcy courts to sell the assets and allocate the proceeds to creditors.
Trustees are required to make reports to the court while the liquidation process is underway.
There are three types of creditors which fall under one of the following categories, secured, general unsecured, and creditors with priority.
Secured creditors typically have collateral over specific assets and have the highest priority over them.
Creditors with priority are unsecured creditors who have priority over other unsecured creditors.
General unsecured creditors have the lowest priority and normally don't obtain the full amount of their claim.
General unsecured creditors are the second lowest on the totem pole and their claims are only fulfilled after secured creditors and unsecured creditors with priority are satisfied.
Coming in last to be paid are the common stockholders who rarely receive any form of capital from a company going through chapter 7 liquidation.
In the beginning of a chapter 7 liquidation an accounting statement of affairs report is made to reveal the estimated amounts the debtor will receive when selling assets, the order of claims by creditors', and the anticipated profits the unsecured creditors will acquire.
Filing for chapter 7 liquidation typically costs two hundred and forty-five dollars for the filing fee accompanied by a seventy-five dollar administrative fee and a fifteen dollar trustee surcharge.
A chapter 7 liquidation process often requires six to twelve months to complete but could be completed sooner depending on the complexity of the case.
Many times if a company files chapter 11 reorganization and has great success after all is said and done they will continue to operate their company in a well-organized way.
For those companies that fail after filing chapter 11 they will then opt to file for chapter 7 and liquidate.
Many people will choose to file chapter 7 because the debtor is able to bring their credit score back up quickly due to the fast pace process of a chapter 7 liquidation.
If a company still has a chance for success it makes sense for the company to file a chapter 11 before filing chapter 7.
Chapter 11 will keep the entire company together and provide an opportunity to once again be successful unlike chapter 7 where assets get liquidated to pay off creditors.
Corporations may select from one of two options when they become overwhelmed with their financial obligations.
They can choose to either initiate a chapter 11 reorganization or a chapter 7 liquidation.
Chapter 11 reorganizations give protection to the corporation from creditors'.
This allows the corporation to step back and look at their company to reorganize and make their company profitable again.
Filing for chapter 11 may be done voluntarily and submitted by the debtor or involuntarily and submitted by the creditors.
In order to file for chapter 11 you must pay a one thousand dollar filing fee along with a forty-six dollar administration fee.
Qualifying for chapter 11 must also be in the best interest of the creditors otherwise it may be dismissed.
Chapter 11 allows the debtor to continue in business while it arranges a plan of reorganization.
The plan must include all actions that the debtor expects to take during the reorganization period and how it will benefit creditors and debtors.
Creditors and other parties are given a disclosure statement which maps out the plan of the debtor.
The investor or creditor can then view the reorganization plan and vote accordingly based on how effective they believe the plan is.
A reorganization plan could be as straightforward as laying off workers, closing some stores, or even creating a payment plan.
Once this step is completed, the bankruptcy court steps in and weighs the responses from the creditors and other parties to determine whether the plan should be accepted or rejected.
The length of a chapter 11 reorganization varies depending on the difficulty of the reorganization.
Some reorganization plans can take a few months while others may take up to a year's time to complete.
A chapter 7 liquidation is defined as "A bankruptcy proceeding in which a company stops all operations and goes completely out of business.
A trustee is appointed to liquidate (sell) the company's assets, and the money is used to pay off debt.
" A Chapter 7 liquidation is enacted for the interest of the corporation's creditors and shareholders.
The goal of chapter 7 liquidation is to gain as much capital as possible by selling the debtor's assets.
A trustee is appointed by the bankruptcy courts to sell the assets and allocate the proceeds to creditors.
Trustees are required to make reports to the court while the liquidation process is underway.
There are three types of creditors which fall under one of the following categories, secured, general unsecured, and creditors with priority.
Secured creditors typically have collateral over specific assets and have the highest priority over them.
Creditors with priority are unsecured creditors who have priority over other unsecured creditors.
General unsecured creditors have the lowest priority and normally don't obtain the full amount of their claim.
General unsecured creditors are the second lowest on the totem pole and their claims are only fulfilled after secured creditors and unsecured creditors with priority are satisfied.
Coming in last to be paid are the common stockholders who rarely receive any form of capital from a company going through chapter 7 liquidation.
In the beginning of a chapter 7 liquidation an accounting statement of affairs report is made to reveal the estimated amounts the debtor will receive when selling assets, the order of claims by creditors', and the anticipated profits the unsecured creditors will acquire.
Filing for chapter 7 liquidation typically costs two hundred and forty-five dollars for the filing fee accompanied by a seventy-five dollar administrative fee and a fifteen dollar trustee surcharge.
A chapter 7 liquidation process often requires six to twelve months to complete but could be completed sooner depending on the complexity of the case.
Many times if a company files chapter 11 reorganization and has great success after all is said and done they will continue to operate their company in a well-organized way.
For those companies that fail after filing chapter 11 they will then opt to file for chapter 7 and liquidate.
Many people will choose to file chapter 7 because the debtor is able to bring their credit score back up quickly due to the fast pace process of a chapter 7 liquidation.
If a company still has a chance for success it makes sense for the company to file a chapter 11 before filing chapter 7.
Chapter 11 will keep the entire company together and provide an opportunity to once again be successful unlike chapter 7 where assets get liquidated to pay off creditors.
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