Corporate bankruptcy is commonly referred to as a chapter eleven. Chapter eleven refers to the chapter of law under which corporate bankruptcy is governed. A company that files bankruptcy does so in the hopes to reorganize the debts that are owed out by the company.
For a company to file a chapter 11 there are many legal forms that have to be filled out, all of the forms combined together are called a petition. These petitions are filed by the attorney representing the company. There is an endless amount of forms to file, they are dedicated to painting a clear picture of the companies finances. Each area has a district where there is a bankruptcy court this is where the petition is filed. A district may encompass many counties within a state.
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When a company files bankruptcy there maybe several situations where this will negatively effect the consumer that has done business with them. For instance, warranty's may no longer be in effect. If the company owes out rebates or refunds that may also be effected. Rebates and refunds may have to be paid out through a trustee instead of directly through the company. Typically a trustee is appointed to disburse the companies debts through bankruptcy.
Those that have provided the company items through a credit plan will also be effected. The trustee will decide who gets money first under the reorganization plan and how much they will be paid and at what interest rate. All of these factors could add up to big losses for creditors. There are forms that can be filed with the bankruptcy court to seek additional relief under the bankruptcy rules, a consultation with an attorney will put those issues in perspective. Rarely will a bankruptcy judge lift an automatic stay to have items returned or stock returned unless the creditor can produce information showing that it is causing there own business undo hardship.
Many company's recover nicely from a chapter 11, and go on to be successful in their business. Many company's are not able to make it under the chapter 11 and are forced to liquidate all their assess to pay off a creditor what they can.
As with a personal bankruptcy, corporate bankruptcy should be a last resort, the absolute only way that this business can be salvaged. It will taint the business's ability to secure financing and credit for many years to come.
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