Chapter 11 Business Organizations November 10th 2014 11 5 Bankruptcy Learning Objectives Bankruptcy Protection Learn about chapter 7 chapter 13 and chapter 11 bankruptcy Understand why businesses must be aware of bankruptcy laws Debtors file for bankruptcy protection to seek protection of the federal court o Once bankruptcy petition is filed the automatic stay goes into effect Automatic Stay Judicial order that halts all collection activities for pre petition debts Pre petition debt Debts that a debtor owes to creditors prior to filing the bankruptcy petition o Debtors find automatic stay advantageous as they can Have their assets liquidated to satisfy creditors Reorganize debts in a manner that satisfies federal law and the creditors Parties Involved in Bankruptcy Businesses can be either debtors creditors or both o If a business is a debtor that chooses to file for bankruptcy the business needs to know the consequences of its actions Sole proprietorship has no consequence on the business if bankruptcy is filed for all business and nonbusiness assets are subject to the bankruptcy court s jurisdiction Legal Implications Associated with Bankruptcy When a corporation files for bankruptcy a chapter 7 bankruptcy should never be used o Unless the corporation is itself terminating Discharge order Order entered by the bankruptcy judge to discharge all dischargeable debts of the debtors Failure to cease collection activities in violation of the automatic stay has legal consequences Classification of Creditors
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