Bankruptcy is one of the most important concepts for today’s companies to understand, not only for knowing what to do in an insolvency situation, but also for the options and alternatives given by its legislation.

1. The Bankruptcy
process and some
of its legislation
concepts
By Suzzanne UhlandImage courtesy of Vladislav Reshetnyak at Pexels.com

2. Bankruptcy is one of the most important
concepts for today’s companies to understand,
not only for knowing what to do in an insolvency
situation, but also for the options and alternatives
given by its legislation. There are different laws
and concepts to consider in the United States
regulations for these circumstances, because
knowing this, the organizations that are facing a
critical economic environment will realize how to
operate and solve its problems in the best and
convenient way.

3. As we mentioned, there are different significant
concepts under the American law that should
be known by all the organizations. In this post, we
will talk about some of these terms, explaining
how they work and their importance for those
companies with financial issues. In addition,
understanding and knowing all these concepts
will give to every business a great
contextualization about the bankruptcy law and
how it can support them in unfavorable
economic situations.

4. Bankruptcy process
For understanding some important concepts like
the different chapters of the Bankruptcy law, what
a credit agreement or a court judge is, it is vital to
know how a bankruptcy process works.
Every bankruptcy process for the American law is
constituted within the Bankruptcy code established
in 1978, codified as the 11 title of the United States
code. Under this regulation, every bankruptcy case
is ruled and operated, being endorsed for the legal
procedures stipulated by this code, with the main
purpose of let those organizations with financial
problems can deal with them in the best way
possible.

5. When a specific organization is facing a
bankruptcy process under the 11 title, is assigned a
specialized judge, which is a judicial officer of the
United States district court. In the United States,
there are 90 bankruptcy districts, where every
state, has one or more of these offices.
As we have said, the main objective of a
bankruptcy process is to give the best possible
alternative so the companies with financial issues,
can deal with them, having a new opportunity to
keep their operations, assuming their credit
obligations and working responsibilities.

6. Having clear what a bankruptcy process is and its
principal purpose, then we can talk about different
concepts around it and how they work within the
bankruptcy law.
Chapter 7, 9, 11, 12 and 13
Chapter 7: under the chapter 7, organizations facing
a bankruptcy or liquidation process, can assume or
pay their debts with what they have in assets. In other
words, businesses with solvency problems can
respond to their financial obligations monetizing their
resources, giving to creditors all or part from what
they owe them. There are some cases, where the
debtor does not have assets to pay its debts; these
are called “non-assets cases”.

7. Chapter 9: this chapter refers to those municipality
reorganization processes, including cities, towns,
counties, among other communities, which have
financial problems to be solved under an economic
restructuration. It is also known as an adjustment of
debts of a Municipality.
Chapter 11: it is also known as Reorganization, and
refers to those cases where a specific business can
restructure its financial obligations under a district court
approval. Put differently, the chapter 11, lets companies
establish a payment debts plan, legally endorsed, so
they can assume their credits obligations through a
debt restructuration. Usually, businesses have 120 days
to present these payment plans. Once these strategies
are legally approved, debtors can pay their financial
responsibilities adequately.

8. Chapter 12: chapter 12 is for those particular
cases, where a farmer or fisherman with regular
annual income has debts problems for being
restructured. Under the Chapter 12, these people
and their families can have more solvency,
organizing and planning their payments and
financial obligations, legally approved and
certified. This is also known as adjustment of
debts of a family farmer or fisherman with regular
annual income.

9. Chapter 13: this chapter is like Chapter 12, with
the difference that it refers to an individual with
regular incomes facing debts issues. Under the
Chapter 12, a particular person can restructure
its debts, getting better payment conditions for
its credits or financial commitments. It is also
known as adjustment of debts of an individual
with regular income and was established for
giving to regular people the possibility for
reorganizing its debts under the law approval.

10. Credit agreement
As we have mentioned in the last chapter, if any company
or person has financial difficulties, they can establish a
payment plan. Usually, these payment strategies are also
known as a debt reorganization or a credit agreement.
There are different alternatives for a payment plan, but as
we have seen in previous posts, there are three of these
options that are the most used; a debt unification, a debt
restructuring, or a credit refinancing. These three choices,
let businesses to reorganize their financial obligations with
different terms, rates and times, giving more cash flow for
keeping their operations adequately and letting them to
respond easier for their working commitments.
Related: 9 Signs You Need To Think About Restructuring by
Suzzanne Uhland