When nothing works, the businessman has no other option but to close the business. With depleted profit, his liability would increase and he is left with no means to meet the liability and this forces him to seek bankruptcy. It would not serve any purpose to drive a business which is in deep debt and for which the market is not favorable for the company to revive it in the near future. This is because the creditors cannot wait till the market fully recovers.

Some major businesses filed bankruptcy applications:

One of the famous automobile manufacturing companies called Studebaker filed an application under Chapter 11 for bankruptcy. That was in the year 1993 and it was the first in the corporate sector to file such application. Thereafter, yet another famous amusement park of US filed bankruptcy application because the business was in debt to the extent of about 1.8 million dollars. In fact it was big news on CNN. The company was not in a position to sustain further losses. So the company filed a bankruptcy application under Chapter 11.

Seeking bankruptcy, a remedy:

The spirit of filing the application under Chapter 11 is to revive, start from scratch or raise from the dust, as some people call it. The company intends to revive itself and move to the helm again. At the same time, the company is expressing its helplessness, which it feels is a temporary phenomenon. The businessman is trying to clear the dust.

In some countries, the debtor is allowed to dispose off the property to clear the debt instead of the creditor taking action to dispose off the debtor’s property to clear the debt.

In the normal course, when a bankruptcy application is filed, the creditors, (be it secured or unsecured), cannot file a suit for sale of the property to recover the dues. This is because the appropriate authorities regulate the process of recovery according to the law of the land. But when the application is filed under Chapter 11, the business is allowed to be continued and the question of recovery process by sale does not arise at all. Normally the unsecured creditors are given equitable share in the value of the assets recovered.




Debbie Joneta also writes about Bankruptcy and Credit issues including File Personal Bankruptcy and Claiming Bankruptcy

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