Adverse economic conditions, foolish business practices and even plain bad luck can lead to situations where companies or individuals simply do not have the funds to pay their debt any longer. It the creditors are of the opinion that businesses and individuals in such positions are unlikely to recover, they can ask to court to declare the enterprise or person bankrupt. The bankruptcy laws of the United States are complex and to apply for chapter 11 reorganization NJ applicants must pass strict means tests.
Anyone, businesses of all sizes and even individuals can apply for this form of bankruptcy. Smaller enterprises and individuals are normally handled according to section seven of the Bankruptcy Code, however. In such cases, the businesses involve have to cease trading. Employees lose their jobs and the assets of the applicant are sold on auction to defray the debt. The process is managed by a court appointed trustee.
In terms of this type of bankruptcy the debtor remains in control of the business, although under supervision of the court. This type of application is normally granted in cases where there are good reasons to believe that the applicant will recover financially. It is also used by large corporates to gain a measure of debt relief in time of great financial strain.
In terms of this section of the bankruptcy code the debtor is allowed to restructure the business with the aim to become profitable once again. The debtor is even allowed to enter into agreements with financing companies and to acquire loans. The applicant is also allowed to cancel previous agreements and contracts, as long as such actions serve to make the applicant solvent again.
Applicants are awarded other benefits too. Creditors are not allowed to sue them whilst under administration and they are normally granted a stay against their creditors and other stakeholders. No collections may be attempted and creditors must approach the courts if the feel that they will suffer if they are not able to collect from the applicant. These measures are all in place to help the applicant to recover financially.
This type of bankruptcy is unique because it expects and allows the debtor to reorganize its business. The expected outcome is that the business will become able to honor its obligations in full. However, this process may take months, even years to complete. Of course, creditors may apply to be part of the process or they may oppose it. It is rarely allowed, however.
Detractors are of the opinion that this law allows large companies to avoid their obligations. They say that these companies simply use the law to delay or avoid payments to suppliers that do not have the federal power that they enjoy. In this way many smaller companies suffer or go under when a large corporate client file for protection under this law.
It is seldom in the interest of the public to have a large corporation go insolvent. There are too many jobs at stake and there is too much money on the line. The best option is to make sure that the business survives and that better management practices are implemented.
Read more about By Using Chapter 11 Reorganization NJ Corporates Can Get Another Chance.
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With Chapter 11 Reorganization NJ Corporates Can Recover
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