What is Bankruptcy?
Bankruptcy is a legal remedy for a business or individual who is unable to pay their debts and wishes to resolve them by allocating assets among the creditors. Once a person or business has filed for bankruptcy, all creditors must stop collection efforts while the debtor organizes assets and settles all debt and credit accounts.
Why would a business or person file for bankruptcy?
Federal bankruptcy laws enable companies to go out of business or recover from debt. Chapter 11 of the Bankruptcy Code allows a company to reorganize its business in an attempt to become profitable. The company may be able to resume normal daily business operations with the approval of a bankruptcy court over major business decisions.
When a person or company files for bankruptcy, assets are typically divided among creditors in the following order:
- Secured Creditors – such as a bank;
- Unsecured Creditors — such as suppliers and bondholders;
Bankruptcy law can be confusing to consumers who face financial challenges and are fearful about the potential impact a bankruptcy might have on their financial future. However, experienced bankruptcy lawyers can help alleviate many of these fears and provide valuable recommendations and guidance to clients struggling with debt. Some of the specific services that an attorney might perform for a client facing bankruptcy include:
- Researching all laws (recent verdicts, changes in legal doctrine) related to bankruptcy;
- Filing claim(s) of bankruptcy;
- Appearing in court for the debtor/client.
Bankruptcy is one of the most intimidating prospects for businesses and individuals alike – and it is often misunderstood. Experienced bankruptcy lawyers are familiar with the relevant legislation and they understand that bankruptcy can be helpful in certain situations. The right legal counsel can make a significant difference in a client’s long-term financial outlook.