Tuesday, October 19, 2021
HomeMust ReadWhy Do Companies File For Bankruptcy

Why Do Companies File For Bankruptcy

Used Law To Protect Interests

Why do bankrupt companies keep running?

Critics have cited the Trump corporate bankruptcies as examples of his recklessness and inability to manage, but the real estate developer, casino operator, and former reality-television star says his use of federal law to protect his interests illustrates his sharp business acumen.

Trump said in August 2015:

“I have used the laws of this country just like the greatest people that you read about every day in business have used the laws of this country, the chapter laws, to do a great job for my company, my employees, myself and my family.

Why Trucking Companies Are Filing For Bankruptcy

Trucking company bankruptcies in 2019 hit a startling new high, a big problem that saw some of the largest trucking companies go out of business.

Close to a staggering 800 trucking companies went out of business in 2019 alone. Trucking company bankruptcies saw big players such as New England Motor Freight , Falcon Transport, Carney Trucking Company, LME, and ALA Trucking go out of business. And in what seemed like a crescendo, the largest trucking company bankruptcy in history came hard and painfully on December 10, 2019.

After a few days of a bankruptcy rumor spreading around, Celadon announced it was filing for Chapter 11 bankruptcy and ceasing operations.

Celadon was best recognized for its over-the-road service and had close to 4,000 employees, about 3,300 tractors, and 10,000 trailerswithout doubt, the largest truckload carrier in North America.

It is no wonder insiders declared 2019 a bloodbath year for the trucking industry.

The 2019 trucking company bankruptcies were a massive jump from the 310 trucking companies that halted operations in 2018. Surprisingly, the fails came after a 27-month long bullish run of annual increases, and a 20-year low in the number of trucking companies.

Why Are Trucking Companies Filing for Bankruptcy?

Understanding whats causing the bloodbath is vital to highlighting the reasons many trucking companies went under in 2019.

In a press release, Celadons CEO said it had encountered three problems:

What could those challenges be?

Filing For Chapter 13 Or Chapter 11 Subchapter V As A Sole Proprietor

If you want to continue operating a company, consider filing for Chapter 13 bankruptcy . You’ll be able to continue operating the business as long as the business has enough cash flow to meet the required Chapter 13 monthly payments, which can be more affordable than the current obligations in many cases.

Because you don’t give up property in Chapter13, it can work well if you need more property to run your business than you could keep under Chapter 7, or if the Chapter 7 trustee would sell your business.

Keep in mind, however, that this benefit comes at a price. You must pay creditors an amount equal to the value of your nonexempt property through the repayment plan. And you must be able to prove that you have sufficient self-employment income to support the bankruptcy case. So if your business requires expensive equipment that you can’t protect with a bankruptcy exemption and the business doesn’t earn enough to pay the equipment’s value through the plan, a Chapter 13 won’t be feasible.

If your business is closed and you don’t qualify for Chapter 7, consider Chapter 13 bankruptcy. You can pay off your debt over three or five years without worrying about creditor collection actions.

You May Like: How To Access Bankruptcy Court Filings

Should I File Bankruptcy

This depends on your situation. If you face major legal matters like judgments, liens, foreclosures, etc., filing bankruptcy maybe your best option, and you should speak to a bankruptcy attorney.

If you face unpaid medical bills or other collection accounts, then bankruptcy is not always the best answer. Collection agencies are unlikely to sue, and you can get away without paying them. You can also dispute the collection accounts and have success getting them removed from your credit report.

When To File For Bankruptcy

Understanding bankruptcy: Why day

Bankruptcy law exists to help people who have taken on an unmanageable amount of debtoften as a result of large medical bills or other unexpected expenses that are no fault of their ownto make a fresh start. But it isnt a simple process and doesnt always lead to a happy ending.

So before filing for bankruptcy, be sure to explore all your alternatives and be prepared for some of the negative consequences described above. If you decide that bankruptcy is your only viable optionas hundreds of thousands of Americans do every yearremember that the blot on your record will not be permanent. By using credit carefully in the future and paying your bills on time, you can begin to rebuild your credit and gradually put bankruptcy behind you.

Read Also: How Long Does Bankruptcy Stay On Credit Report

Modern Law And Debt Restructuring

The principal focus of modern insolvency legislation and business debt restructuring practices no longer rests on the elimination of insolvent entities, but on the remodeling of the financial and organizational structure of debtors experiencing financial distress so as to permit the rehabilitation and continuation of the business.

For private households, some argue that it is insufficient to merely dismiss debts after a certain period. It is important to assess the underlying problems and to minimize the risk of financial distress to re-occur. It has been stressed that debt advice, a supervised rehabilitation period, financial education and social help to find sources of income and to improve the management of household expenditures must be equally provided during this period of rehabilitation . In most EU Member States, debt discharge is conditioned by a partial payment obligation and by a number of requirements concerning the debtor’s behavior. In the United States , discharge is conditioned to a lesser extent. The spectrum is broad in the EU, with the UK coming closest to the US system . The Other Member States do not provide the option of a debt discharge. Spain, for example, passed a bankruptcy law in 2003 which provides for debt settlement plans that can result in a reduction of the debt or an extension of the payment period of maximally five years , but it does not foresee debt discharge.

Protect Your Business From Customer Bankruptcy With Trade Credit Insurance

When a customer declares bankruptcy and later becomes insolvent, collecting on past-due invoices becomes next to impossible. Euler Hermes can help keep your cash flow positive with Trade Credit Insurance. Trade Credit Insurance protects your accounts receivables against loss and guarantees compensation even in the event of non-payment. Learn more about Euler Hermes and get a free trade credit insurance quote.

You May Like: How To File Bankruptcy In Iowa For Free

Filing For Bankruptcy Doesnt Help Your Credit At All

When you file for bankruptcy, youre giving your credit the death penalty. The bankruptcy and all of the accounts included in the bankruptcy will appear on your credit report for the next 7 years. Even a few years down the road, creditors will see you as high risk.

Youll have a hard time getting new lines of credit or loans for many years. Most people understand this. However, theyre told they have no other options and have to file bankruptcy if they cant pay their debts. False!

You Cant Make Payments On Small Amounts Of Unsecured Debt

Bankruptcy Why So Many Business in 2020 Will File Bankruptcy and Shut down for GOOD! Bankruptcy Tips

Unsecured debt, which includes most credit cards and medical bills, is debt the lender allowed you to run up without asking for collateral in return. Therefore, if you default on unsecured debt, the lender doesnt have anything to repossess.

A lot of people think that not making their payments on these debts will have significant consequences like wage garnishment, but most unsecured lenders arent able to take these extreme measures without actually suing you in court. If you do get sued, simply filing a response asking the lender to prove they own the debt and that you owe them can delay things for months.

If you completely stop paying, especially if the debt is small, lenders may write it off as uncollectable or be willing to accept a lump sum for a portion of the debts worth. Negotiating your interest rate or payment terms can work very well with unsecured debt. As long as your creditors think youre likely to declare bankruptcy, theyre usually happy to negotiate with you because they know theyll get little, if anything at all, from bankruptcy proceedings.

Don’t Miss: How Much Is Bankruptcy Chapter 13

Forming A Corporation Or Llc

A corporation or LLC is created by filing documents with the secretary of state and paying registration fees. Once established, the company operates as a separate legal entity. The business owns assets and is legally liable for paying its debts.

Because corporations and LLCs are separate entities, people don’t own them outright. Instead, individuals own stakes in the company rather than the company itself. For instance, an individual corporate shareholder will own shares of the corporation. An LLC member will hold an ownership interest that’s outlined in the LLC’s operating agreement. Each type of ownership interest entitles the holder to a portion of its value and profits.

Example. A shareholder or member who files an individual bankruptcy doesn’t list the company itself as an asset in the bankruptcy paperwork. Instead, the filer will list the value of the corporate shares or the value of the LLC ownership interest as property owned. The bankruptcy trustee can sell only the filer’s interest in the company, not the entire business, unless the filer is the sole shareholder or member, of course. As an aside, few buyers are willing to purchase a partial interest in a small business.

These types of business structures work well for people who want to take part in business without risk to their personal wealth. The structure prevents business creditors from coming after an individual’s personal assets .

Corporate Bankruptcy: What Every Investor Should Know

By FindLaw Staff | Reviewed by Maddy Teka, Esq. | Last updated April 05, 2021

Companies sometimes must file for bankruptcy protection, either to restructure and reemerge debt-free or to wind down operations. But an investor’s interestsÂ;can be greatly affected when publicly traded corporations go bankrupt.

Recommended Reading: Can You Get Rid Of Student Loans With Bankruptcy

The Running List Of 2020 Retail Bankruptcies

The following post will continue to be updated to reflect the current major retailers that have filed for bankruptcy protection in 2020.

Last year sent 17 major retailers;into bankruptcy. For some including Payless, Gymboree and Charming Charlie ;it was their second trip;to court. Bankruptcy also proved fatal for more retailers in 2019, as liquidations;increased. In all, retailers closed more than 9,500 stores;last year.;

This year, retailers are facing even tougher challenges, as the coronavirus outbreak caused most U.S. retail to temporarily shutter, keeping customers away, and forcing retailers to negotiate with landlords and suppliers to tackle unforeseen inventory and liquidity issues. On top of that,;the forces that pushed dozens of retailers into bankruptcy over the last four years or so are still present.;

This year started off with the parent of fine paper specialist Papyrus quietly going into liquidation;before filing for bankruptcy, with home decor staple Pier 1;not far behind with its own, more uncertain, filing.;

Here is a closer look at the major retail bankruptcies of 2020 so far.

Show all
  • Since June alone, Warby Parker;filed for a public listing, Etsy acquired Elo7 and Foot Locker bought up two retailers, among many other deals.

    By Retail Dive Team Updated: Aug. 12, 2021

  • Acceptance Of The Plan Of Reorganization

    Why Do People File for Bankruptcy? by gennie chan

    As noted earlier, only the debtor may file a plan of reorganization during the first 120-day period after the petition is filed . The court may grant extension of this exclusive period up to 18 months after the petition date. In addition, the debtor has 180 days after the petition date or entry of the order for relief to obtain acceptances of its plan. 11 U.S.C. §;1121. The court may extend or reduce this acceptance exclusive period for cause. 11 U.S.C. §;1121. In practice, debtors typically seek extensions of both the plan filing and plan acceptance deadlines at the same time so that any order sought from the court allows the debtor two months to seek acceptances after filing a plan before any competing plan can be filed.

    If the exclusive period expires before the debtor has filed and obtained acceptance of a plan, other parties in interest in a case, such as the creditors’ committee or a creditor, may file a plan. Such a plan may compete with a plan filed by another party in interest or by the debtor. If a trustee is appointed, the trustee must file a plan, a report explaining why the trustee will not file a plan, or a recommendation for conversion or dismissal of the case. 11 U.S.C. §;1106. A proponent of a plan is subject to the same requirements as the debtor with respect to disclosure and solicitation.

    You May Like: Will Filing Bankruptcy Affect My Car Loan

    Coronavirus Could Create A ‘bankruptcy Pandemic’

    Stuart Gilson

    With a pandemic temporarily closing many businesses and stifling consumer demand, whole industries, especially those that recently leveraged their balance sheets to take advantage of near-zero interest rates, are seeing their profits disappear virtually overnight, leaving too little cash flow to cover debt payments owed to creditors.

    This could set up the perfect storm for a huge wave of bankruptcies in the weeks and months ahead, says Stuart C. Gilson, the Steven R. Fenster Professor of Business Administration at Harvard Business School.

    There is a realistic probability that we could indeed see a pandemic of bankruptcy filings in the near future, Gilson says. The pandemic analogy is particularly apt, in that if the number of new filings is sufficiently high, the bankruptcy courts, like hospitals treating COVID-19 patients, could be overwhelmed.

    Several US businesses have already filed since the coronavirus started rocking the US economy in mid-March, including Neiman Marcus, J. Crew, Dean & DeLuca, CMX Cinemas, and Golds Gym. The latest: JCPenney on May 15 filed for Chapter 11 bankruptcy protection after 118 years in business.

    As Gilson explains in this Q&A, bankruptcy doesnt necessarily mean the death of a company, and in fact, it can actually be the very thing that saves a business, assuming the courts can handle the flood that is likely coming.

    THE CORONAVIRUS CRISIS

    Advantages And Disadvantages Of Filing For Bankruptcy

    Many who qualify for bankruptcy never avail themselves of its potential benefits. While it is true that a bankruptcy filing can affect a persons finances for years to come, for many people, filing is the best option. However, every persons financial circumstances are unique to his or her situation. Deciding if, when and how to file for bankruptcy is a very complicated process and the consequences of filing when you shouldnt can be considerable. It is important to consult with a skilled bankruptcy attorney to determine whether bankruptcy is your best option. We invite you to contact us at Arnold & Smith, PLLC to arrange a free consultation with one of our experienced attorneys to discuss your particular situation and how a bankruptcy could impact your financial situation.

    Advantages of filing for bankruptcy include:

  • An automatic stay against creditors. Once you file, the court automatically issues this stay against any and all debt collection activity. It does not actually cancel your debt, but it suspends any debt collection proceedings until your bankruptcy case is complete or the stay is lifted. This means no more:
  • Dischargeable debts. You may be able to discharge, or cancel, your responsibility to repay these debts. A dischargeable debt is one that can be eliminated by bankruptcy. These typically include credit card debt, medical and utility bills, and personal loans.
  • The potential disadvantages of bankruptcy include:

    Also Check: How Much Debt To File Bankruptcy

    When To Move Forward With Bankruptcy

    If none of the above situations apply to you, bankruptcy may be a viable option. And if your debt is spiraling out of control, dont wait too long to declare it.

    Below are a few red flags that can indicate your current financial situation is untenable. In these cases, bankruptcy may offer the only way out.

    What Happens To The Company’s Stocks And Bonds

    Why one of the BIGGEST Wheel Companies Filed Bankruptcy

    A company’s stock most likely will continue trading after a Chapter 11 bankruptcy filing. However, it often gets delisted from the Nasdaq or NYSE after failing to meetÂ;listing standards.Â;

    If the stock is delisted from one of the major exchanges, it may trade on the Pink Sheets or OTCBB. Practically speaking, companies usually take a significant hit to their stock value after a bankruptcy filing.Â;

    Investors should understand that existing shares of common stock in a company filing for Chapter 11 usually are canceled, even if the company emerges and returns to profitability. Also, keep in mind that stockholders will not receive dividends during a bankruptcy proceeding.

    Common stock usually becomes diluted during bankruptcy. You may be able to exchange your old shares for new shares in the reorganized company. These new shares, however, will be fewer in number and lower in value.

    If a company is determined by the court to be insolvent, stockholders may not get anything after bankruptcy. In any event, investors’ rights will be explained in the reorganization plan.

    Bondholders, meanwhile, will not receive any payments during a corporate bankruptcy. But bondholders may be able to exchange bonds for new stock, new bonds, or some of each.

    You May Like: What Is Bankruptcy And Insolvency Act

    Suspension Of Debt Payments

    Under a Chapter 11 bankruptcy proceeding, often referred to as Chapter 11 protection, a business temporarily does not have to pay bills it has accrued. Creditors form a committee that gives them access to the businesss plan for reorganization and the right to provide information to the judge overseeing the bankruptcy. A Chapter 11 reorganization plan often includes a proposal to pay creditors only a percentage of what they are owed. In some instances, creditors will agree to this to help the company stay afloat, which might result in millions of dollars worth of future business if the company survives. The creditors committee votes on the businesss reorganization plan, with the judge having the final say on approval.

    RELATED ARTICLES

    Most Popular