Types of Bankruptcy Filings

Corporate Bankruptcy
Name
Institution
Course
Instructor
Due Date
Corporate Bankruptcy
An incorporated entity should be aware of the potential course of action it can take to deal with instances of financial distress. While bankruptcy and restructuring provide a solution to an entity’s financial woes, the owner must consider all the implications of such a decision. The decision can be eased by an understanding of the liquidation calculations. In this paper, the forms of bankruptcy and restructuring as well as the implications of such a decision are explored.
Types of Bankruptcy Filings
Notably, an incorporated company in financial distress can consider three potential avenues for dealing with bankruptcy and restructuring. First, the company can file for Chapter 7 Bankruptcy. In such a scenario, the debtor's non-exempt assets are sold off by a court-appointed trustee to pay off creditors. In Chapter 7 bankruptcy, the debtor files a petition with the bankruptcy court, along with a detailed schedule of their assets, liabilities, income, and expenses. Once the petition has been filed, an automatic stay is granted preventing creditors from pursuing their collection efforts until the debt is resolved by a court-appointed trustee after liquidation. Notably, Chapter 7 bankruptcy is an indication that the company will cease to operate and should be pursued if a business owner does not consider the business viable.
Second, an incorporated entity can pursue Chapter 11 bankruptcy. Chapter 11 bankruptcy is designed in such a way that it allows a business owner to continue business operations after agreeing on how to repay its outstanding debts. To this end, the debtor drafts a plan detailing how the outstanding debts will be paid and seek approval from the court and creditors (Hunter & Shannon, 2020). Once the plan is approved, the debtor is supervised by the court to ensure that the interests of the creditors are protected. Chapter 11 bankruptcy offers an opportunity for financially distressed companies to continue operating without facing significant pressure from creditors.
Third, an entity may pursue out-of-court restructuring as an alternative to Chapter 7 and Chapter 11 filings. The out-of-court restructuring involves a company seeking to resolve its financial woes without seeking the input of the court. Given the inexpensive nature of the process, it is considered appealing to companies that have sufficient liquidity to propose an out-of-court restructuring. The success of reaching an out-of-court restructuring depends on the entity’s ability to reach an agreement with its creditors (DePamphillis, 2022). Notably, the option is less formal and offers a high degree of flexibility compared to Chapter 7 and Chapter 11 filings.
Voluntary Bankruptcy
Notably, an entity can decide to enter a voluntary bankruptcy by willingly filing for Bankruptcy protection under either Chapter 7 or Chapter 11. Voluntary bankruptcy is considered an option when an entity faces overwhelming financial difficulties and is keen to gain relief from financial obligations. The main e...