What is Corporate Bankruptcy? How it Works and the Implications For All Concerned

Corporate bankruptcy or chapter eleven refers to a chapter in law which governs corporate bankruptcy. A company when filing for bankruptcy hopes to rearrange the debts that it owes to its stakeholders. The procedure that ensues involves a lot of paperwork and documentation. All documents are required to be combined together which is referred to as the petition. The petition is filed by an attorney who represents the company. Several files, forms and official documents are required to be submitted by the attorney. This is required to obtain adequate information about the company's finances. Once filled, all documents are submitted at a bankruptcy court.

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Corporate bankruptcy has a profound impact on the consumers of the company. For example, warranties may no longer remain valid. Alternately, if the company owes refunds or rebates, these may be reimbursed through an appointed trustee and not directly through the company. Several other factors add up to huge losses for the creditors. Many firms while filing for bankruptcy seek financial relief under the bankruptcy laws. However, it has been rarely found that a judge has lifted the stay on the company to return the stock it may have purchased.

In several cases, the companies filing for bankruptcy liquidate all their assets to pay off whatever they can to their creditors. However, corporate bankruptcy does not mean the end of road for the company filing for bankruptcy. A number of companies after filing for bankruptcy have bounced back and regained their shareholder's confidence within a short span of time. Corporate bankruptcy takes a huge toll on the financial reputation of the company. Therefore, like personal bankruptcy, corporate bankruptcy should also be the last resort to save a sinking company. The company's auditors and board members can prevent filing for bankruptcy by taking necessary steps on time.

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