Need Information? The Basics of Chapter 11 Bankruptcy

Corporations that get into deep financial trouble have the option of filing for Chapter 11 bankruptcy protection. This is basically the process of the courts ordering the company's creditors to cease their pursuit of monies extended to the business in the form of credit. This often happens because the company's finances get mismanaged and the debt piles up until it becomes too overwhelming to repay. As a result, the court appoints a trustee to oversee the company's debts and assets in order to help repay the creditors in a timely and efficient manner.

Bankruptcy in business is not much different from personal bankruptcy, but there are some slight differences. Business bankruptcy can be voluntary, but sometimes it is forced upon them if their debts are too great and their debtors are calling for it. The business then files for Chapter 11 bankruptcy protection and its debts are assessed so the court can decide how their creditors will be repaid. One advantage of corporate bankruptcy is that oftentimes the business has the option of continuing its normal business operations without liquidating all of the assets. As a result, the company can usually continue to operate and make money while its creditors receive a portion of the revenue to apply to the debts.

When a business files for corporate bankruptcy in which its debts are greater than its assets, the stockholders receive nothing after the bankruptcy is completed. Essentially, they lose all rights that they had to the company and its assets. As a result, the creditors take control of the company in order to help it retrieve the monetary losses incurred by extending credit to it. This is also done to help save the jobs that the corporation provides and to help retain the profit-making capabilities of the business.

Although it is a good idea for a failing business, bankruptcy has many critics who feel that it is harmful to allow corporations to file for the court's protection from its creditors. Many critics say that it is unfair for a company to continue to operate once it has filed for bankruptcy. The reason is that the company can cease paying its debts and use that money for improving the business. As a result, the company has an advantage over its competitors because it has more money to unduly put into acquiring more customers, planning better products, and much more. Others say that Chapter 11 bankruptcy only perpetuates the problem of bad financial management in the upper tiers of the corporation's executives. Filing for bankruptcy protection only adds to this problem by maintaining the practice of bad financial management.

Chapter 11 bankruptcy offers a variety of services to corporations in financial troubles. While it holds many positive aspects for the corporations, some critics claim that the practice could have a detrimental effect on society and its economy. Even the biggest names in business are subject to financial troubles and Chapter 11 has given them a relief from creditors while they reorganize their finances. Oftentimes, they can stay in business and create more revenue for their creditors. Despite criticisms, this form of financial relief is sometimes necessary to give corporations another chance.