1 / 11

BANKRUPTCY

BANKRUPTCY. Procedures and Outcomes Andrew Pickett. History. Bankruptcy Act of 1898 (Nelson Act) Bankruptcy Act of 1938 (Chandler Act) Bankruptcy Reform Act of 1978. What is Bankruptcy?.

aolani
Download Presentation

BANKRUPTCY

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. BANKRUPTCY Procedures and Outcomes Andrew Pickett

  2. History • Bankruptcy Act of 1898 (Nelson Act) • Bankruptcy Act of 1938 (Chandler Act) • Bankruptcy Reform Act of 1978

  3. What is Bankruptcy? • Gives debtors who are unable to meet their debt obligations a mechanism for formulating a plan to resolve their debts through an allocation of their assets among their creditors. • Liquidation • Reorganization

  4. Bankruptcy Code • Six types of bankruptcy under the Bankruptcy Code: • Chapter 7: basic liquidation for individuals and businesses; also known as straight bankruptcy; it is the simplest and quickest form of bankruptcy available • Chapter 9: municipal bankruptcy; a federal mechanism for the resolution of municipal debts • Chapter 11: rehabilitation or reorganization, used primarily by business debtors, but sometimes by individuals with substantial debts and assets; known as corporate bankruptcy, it is a form of corporate financial reorganization which typically allows companies to continue to function while they follow debt repayment plans • Chapter 12: rehabilitation for family farmers and fishermen; • Chapter 13: rehabilitation with a payment plan for individuals with a regular source of income; enables individuals with regular income to develop a plan to repay all or part of their debts; also known as Wage Earner Bankruptcy • Chapter 15: ancillary and other international cases; provides a mechanism for dealing with bankruptcy debtors and helps foreign debtors to clear debts.

  5. Bankruptcy Code ctd. • Most common type for individuals are Chapters 7 & 13 • Corporations and other business forms file under either Chapters 7 or 11 • As much as 65% of all U.S. consumer bankruptcy filings are Chapter 7 cases

  6. Chapter 7 - Liquidation • All the assets of a corporation will be distributed to holders of claims on the corporation, and no corporate entity will survive. • Claimholders receive cash disbursements • Absolute Priority Rule

  7. Chapter 11 - Reorganization • New corporate entity • Claimholders can receive cash, securities in the newly reorganized corporation, or a combination of both • Often violate the Absolute Priority Rule

  8. Chapter 11 - Reorganization ctd. • Process: • Committee representing various claimholders appointed to formulate plan of reorganization • Negotiation process usually long • Creditors often convince equity holders to accept the plan by offering to distribute some value to them • For reorganization plan to be approved: • Approval from the court • 2/3 approval from the number of claims voting • 2/3 approval from outstanding shares of each class of interests

  9. Recent Developments • Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) • Published in 2005 and amended the Bankruptcy Code (Individual bankruptcy) • Means test • Those with the ability to pay will be required to pay at least a portion of their debts. • Those who fall behind their state’s median income will not be required to pay back debts • More difficult for serial filers to abuse generous bankruptcy protections • 8-year rule

  10. Questions?

  11. Sources • Fabozzi, Frank J., Franco Modigliani, and Frank Joseph. Jones. Foundations of Financial Markets and Institutions. Boston, MA: Pearson/Addison-Wesley, 2010. Print. • Wikipedia, the Free Encyclopedia.Web. 03 May 2011. http://en.wikipedia.org/ • "Corporate Bankruptcy." U.S. Securities and Exchange Commission (Home Page). Web. 03 May 2011. <http://www.sec.gov/investor/pubs/bankrupt.htm>. • "An Overview Of Corporate Bankruptcy." Investopedia.com - Your Source For Investing Education. Web. 03 May 2011. <http://www.investopedia.com/articles/01/120501.asp>.

More Related