CH 31 BANKRUPTCY #1 1) What is the main difference between a Liquidation proceed
ID: 2487019 • Letter: C
Question
CH 31 BANKRUPTCY #1
1) What is the main difference between a Liquidation proceeding under Ch 7 of the bankruptcy code and a Reorganization under Ch 11 of the Bankruptcy Code?
2) What is the main difference between a voluntary bankruptcy and an involuntary bankruptcy? How can an involuntary bankruptcy be accomplished?
3) Can any debtor simply choose whether to go for a Liquidation bankruptcy or a Reorganization? Which type of bankruptcy is preferred by most debtors? How is it determined?
4) Explain the concept of the Automatic Stay?
5) Explain the concept of the 3 main powers of trustees in bankruptcy?
Thanks!
Explanation / Answer
1) The main difference between liquidation proceeding under chapter 7 of the bankruptcy code and a Reorganization under Chapter 11 of the Bankruptcy code is the way the debts are settled and assets are liquidated.
Chapter 7 is applied when the company is beyond the stage of reorganization. The debts are settled to the creditors as per the amounts they loaned. A trustee is appointed to sell the secured assets and repay to the secured creditors. Any balance pending after settling to the secured creditors will be paid to the unsecured creditors.
Chapter 11 is applied to reorganize the debts and to ensure the company assets are not fully liquidated. In this case also a trustee is appointed and the trustee supervise the assets and allows the business to continue. The terms of the creditors will be changed in an amicable manner. The debts are not absolved, but they are restructured in such a way that a company will be able to pay back in future by successfully running the organization.
2) Voluntary Bankruptcy is filed by the organization, when it seems unable to settle the debts and to run the company. Involuntary Bankruptcy is filed by the creditors against a company. The main difference is the point of initiation of bankruptcy petition.
Involuntary Bankruptcy can be accomplished if the creditors meet one of the following conditions:
However, there are several restrictions on the creditors’ ability to file an involuntary bankruptcy against a company. Creditors cannot:
3) Debtors can choose any type of bankruptcy whether Chapter 7 Liquidation Bankruptcy or Chapter 11 Reorganization or it can be chapter 13 also. There are no restrictions to choose which type of bankruptcy should be filed. However, the debtors before filing any type of bankruptcy should be careful in determining their size of the organization, Income and assets available.
Your income is important because it may preclude you from filing chapter 7 bankruptcy and assets are important because if you have a nonexempt property.
Generally Chapter 7 is good for smaller organizations and Chapter 11 is good for larger organizations. However, there are no restrictions on that. Even individuals can file Chapter 11 Reorganization.
In both the cases as discussed above in 1), a trustee will be appointed and the debts are settled as per the Bankruptcy code.
4) Automatic Stay is an automatic injunction that stops actions by the creditors, with certain exceptions, to collect debts from the debtor who has filed bankruptcy. That means once the bankruptcy petition has been filed by an organization, the creditors will not have any right to collect their debt, except for certain regulations as prescribed.
The creditors will be settled once the process of liquidation or reorganization is started by the trustee.
Automatic stay provisions will protect the debtor against certain actions by the creditor like:
5) The duties of the trustees in bankruptcy changes depending on the type of bankruptcy filed and circumstances of a particular debtor and their creditors. But if we have to put it in general