Corporate Bankruptcy

1464 Words3 Pages

Corporate Bankruptcy

Building a successful business is very difficult and when doing so some may encounter financial hardship. The law has established a process that can help rescue businesses. This is called bankruptcy. What is bankruptcy to a company? How does bankruptcy rescue businesses? The reader will understand the meaning of bankruptcy to a corporation, be familiarized with types of proceedings, and identify with businesses that have been rescued by bankruptcy proceedings.

Bankruptcy is a federal system of statutes and courts which permits persons and businesses which are unable to pay debtors or in some cases face potential insolvency, to place their financial responsibilities under the control of the bankruptcy court (www.law.com). The way this works is that when the business's debts exceed its assets or is unable to pay, the business can file a petition with the bankruptcy court. This called filing for voluntary bankruptcy.

If a business does not file for bankruptcy the unpaid creditors can file an "involuntary" petition to force the business into bankruptcy (www.law.com). It is better and most common for businesses for file voluntary bankruptcy (www.law.com).

There are three types of petitions: Chapter 7, Chapter 11 and Chapter 13 (www.law.com). The most popular is for business to petition is under Chapter 7 (www.law.com). In Chapter 7, businesses are appointed a trustee by the court (www.law.com). The trustee is like a financial wizard. The trustee counts up the businesses assets with the plans of keeping them from the bankruptcy, pays debts the business owes with paying taxes first (www.law.com). The trustee then focuses on paying secured debts such as mortgages and lastly unsecured debts (www.law.com).

Then the court officially declares the business bankrupt and discharges the unpayable debts, this is a lost for the creditors (www.law.com). Filing a bankruptcy petition will suspend all existing legal actions like foreclosure and other imposition of judgment. Businesses cannot file for bankruptcy again for seven years (www.law.com).

Chapter 11 bankruptcy allows a business to reorganize and refinance to prevent dislocation of the organization (www.law.com). Most of the time there is no trustee appointed, but the business is given time to present a plan of reorganization (www.law.com). This does not always work well for busines...

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...mart.com). This is new recovery and Kmart has a long way to go according to ABC news.

In conclusion, bankruptcy is a way for businesses to rescue themselves when in financial hardship. Not every company will make it. Some may be lost, but the law provides every business the opportunity to fight for it's survival. 3M, NationsRent, and Kmart have all made it through and they are looking for a promising future.

Work Cited

3M Company web page. Http://www.3m.com

Company News; Citing Weak Demand, 3M Says it is Cutting 125 Jobs, New York Times, 2003.Section C. P.4. Http://www.newyorktimes.com

Law Dictionary, http://www.law.com

Lorrie Grant. Kmart should exit Chapter 11 quietly, expert say. USA Today. April 2004

Minnesota Mining & Manufacturing Company (3M)" International Directory of Company Histories, Vol. 26. St. James Press, 1999. Reproduced in Business and Company Resource Center. Farmington Hills, Mich.: Gale Group. 2006.

Http://galenet.galegroup.com/servlet/BCRC

NationsRent Company web page. Http://www.nationsrent.com

Troy Bryant. NationsRent, Hoover.com, http://www.hovers.com/nationsrent/--ID_57275--/free-co-factsheet.xhtml. retreived July 12, 2006

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