According to the US Bankruptcy Code, a chapter 11 bankruptcy is frequently referred to as a """"reorganization"""" bankruptcy. Essentially, federal bankruptcy laws dictate how a company must cease operations and recover from overwhelming debt in order to become profitable once more. Typically, this is achieved through the use of a management plan governed by the guidelines and regulations of the bankruptcy courts.
When a business files for chapter 11 bankruptcy, reorganization is required. In this case, the business continues its day-to-day operations, but all significant business decisions must be approved by the bankruptcy courts. Chapter 11 is the only section of the bankruptcy code that permits business operations to continue, and if the business manages to reorganize, it may be permitted to exchange old stocks and bonds for new ones, even if the new stock is worth less than the original stocks and bonds. Regardless of the outcome, it is up to the bankruptcy court to determine whether stockholders receive anything and whether or not the debtor is solvent.
If a business chooses to file under Chapter 7 of the Bankruptcy Code, it must cease all operations and cease to exist. The Bankruptcy court then appoints trustees to completely liquidate the company's assets and repay all debt. Investors and creditors are included in these debts. In general, stockholders may recoup a portion of their investment, but chapter 7 business equities are typically worthless.
Under chapter 7 or the """"liquidation"""" form of bankruptcy, non-exempt property may be sold or """"liquidated"""" to repay a portion of the debt. Often referred to separately as """"consumer, chapter 7"""" and """"business, chapter 7"""", it typically lasts between three and six months.
In Chapter 7 bankruptcy, some property is typically sold to reduce the debt, but the vast majority of unsecured debt is eliminated, and you may be permitted to retain classified property such as apparel, vehicles, and furnishings. Secured debt is a different situation; if your car has been pledged as collateral, for example, you have the option of allowing the creditor to repossess the car or paying a lump sum to the creditor equal to the car's current replacement value. Certain types of secured debt may be discharged.
Chapter 13 is the most common method of reorganization bankruptcy for the majority of consumers, allowing them to retain their property in exchange for three to five years of payments to ensure that all debts are repaid.
All types of bankruptcy have an abundance of rules and regulations, as well as exceptions to those rules. Essentially, it is a very complex procedure. These determine what property you may or may not retain and what debts are covered.""
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