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What Is Corporate Bankruptcy?

The legal process by which a company declares that it is unable to pay its debt and need some relief is termed as corporate bankruptcy. After filing bankruptcy one may become debt free. Filing bankruptcy is not a failure; it is a way to restart your life. Most of the people do not know how to eliminate debt by filing bankruptcy so one must consider business bankruptcy in this regard. It will help him a lot.

Two types of bankruptcy:

Chapter 7: The U.S Security and exchange commission states that under chapter 7 bankruptcy code the company stops all the operations and goes out of the business. A trustee is appointed to sell the company assets and the money is used to pay off the debt. All the debt is not created equal. Investors or creditors are paid first.

Chapter 11: The Company under chapter 11 expects to return to the normal business. This type of bankruptcy is usually filed by corporations that need time to restructure debt.

Top reasons why people go bankrupt:

Medical expenses: According to a study in Harvard University, this is one of the biggest causes of bankruptcy. Rare or serious injury can result in thousands of dollars in medical bills- bills that can easily wipe out the savings. In such situations, bankruptcy may be the only shelter left.

Job loss: the loss of income from the job is devastating. Some people are lucky enough to receive severance packages but most of the people do not receive even a prior notice.  This is also one of the causes of being bankrupt.

Unexpected expenses: Loss of property due to many unexpected reasons such as earthquakes, floods, tornados for which the owner is not insured can force some into bankruptcy. Many home owners are unaware from this type of peril and thus they face serious problems. They not only face the loss of their homes but also their possessions as well.

No need to worry about bankruptcy:

Most unpaid debts are the result of loss of job, medical issues, divorce etc. Most of the people even find themselves in a situation where they are being sued by a debt collector. In this condition they are trying to figure out what to do. They have probably been thinking about filing bankruptcy but they were worried about what they have heard about filing bankruptcy. Stop worrying. Many people recover from a bankruptcy within two years on the basis of their credit reports.

Effect of bankruptcy on investors:

As an investor, it is a complicated situation when your company is going through any bankruptcy. Once your company files any kind of bankruptcy, your opportunities as an investor change to reflect the bankrupt the company status. While some companies make successful comebacks after undergoing restructuring. You need to realize that your investment in the company can become reality.

Conclusion:

There are many reasons why taxpayers are forced to declare bankruptcy. No matter what type of investment one made in the company, once it goes bankrupts one receives a lower return on the investment than expected. Before taking any alternative one should seek a financial planner In this regard.

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