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Bankruptcy |
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Why Bankruptcy is not an automatic write-off?
In the United States, bankruptcy can be a complex legal issue with many side effects. Even for those familiar with the U.S. legal system, figuring out the details of bankruptcy proceedings ca be a daunting task. Below you find the major points of the two types of bankruptcy that apply to U.S. businesses. Knowing what recourse you have available when a U.S. customer enters bankruptcy can help ensure that your cash flow remains healthy.
Chapter 7: Liquidation
- The company will most likely cease operations.
- Assets will be seized and sold to compensate the creditors as much as possible.
- A debtor company can decide to pay a discharged debt, but is not required to do so.
- Collection activity must be halted for all accounts that are outstanding while the bankcruptcy petition is in the court systems.
- f the bankruptcy petition is denied, then collection activity may resume on all outstanding accounts.
Chapter 11: Reorganization
- The business will most likely continue to operate.
- The company is in trouble, but will attempt to reorganize their finances.
- A plan of repayment is filed, which must be approved by the court.
- Collection activity must be halted for all accounts that are outstanding while the bankruptcy petition is in the court system.
- If the bankruptcy petition is denied, then collection activity may resume on all outstanding accounts.
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