2. Bankruptcy
A legal proceeding involving a person or business
that is unable to repay outstanding debts
All of the debtor's assets are measured and
evaluated, whereupon the assets are used to repay a
portion of outstanding debt
3. Types of Bankruptcy
Voluntary bankruptcy: A bankruptcy petition filed in
federal court by the distressed firm’s management.
Involuntary bankruptcy: A bankruptcy petition filed
in federal court by the distressed firm’s creditors.
5. How to Overcome Bankruptcy
Cut Costs
Contact Customers and Suppliers
Contact Creditors
Consolidate Loans
6. Bankruptcy of Lehman Brothers
On September 15, 2008, Lehman Brothers
filed for bankruptcy. With $639 billion in
assets and $619 billion in debt
Lehman was the fourth-largest U.S.
investment bank at the time of its collapse,
with 25,000 employees worldwide
Lehman's demise also made it the largest
victim, of the U.S. subprime mortgage-
induced financial crisis that swept through
global financial markets in 2008
7. Bankruptcy Law in India
India does not have a clear law on corporate
bankruptcy even though individual bankruptcy laws
have been in existence since 1874. The current law in
force was enacted in 1920 called the Provincial
Insolvency Act.
8. Chapters Under Bankruptcy Code
Chapter 7: basic liquidation for individuals
and businesses
Chapter 9: municipal bankruptcy
Chapter 11: rehabilitation or
reorganisation, used primarily by business
debtors
Chapter 12: rehabilitation for family
farmers and fishermen
Chapter 13: Individuals
Chapter 15: ancillary and other
international cases
9. References
(2014) Business Bankruptcy, Available
at: http://smallbusiness.chron.com/causes-
business-bankruptcy-49407.html (Accessed: 12th
January 2015).
(2015) How to deal with debt, Available
at: http://www.debt.org/small-business/how-to-
deal-with-debt/ (Accessed: 14th January 2015).
Editor's Notes
Upon the successful completion of bankruptcy proceedings, the debtor is relieved of the debt obligations incurred prior to filing for bankruptcy. Bankruptcy offers an individual or business a chance to start fresh by forgiving debts that simply can't be paid while offering creditors a chance to obtain some measure of repayment based on what assets are available.
1. Poor conditions in overall economy and the specific market in which a business operates are common causes of bankruptcy. During bust periods, consumer confidence and spending tend to decline, which can lead to low revenue. Companies involved in specific niche markets can also be susceptible to shifts in consumer preferences. For example, a small business owner that owns a music store might be forced to close shop if customers start buying digital downloads instead of CDs 2. Financing is one of the primary challenges that small businesses face. Many business owners take out loans to help finance their operations. If a business struggles, his lender may not be willing to grant additional funding, which could lead to bankruptcy. 3. Lack of planning and level-heading thinking can lead to hasty decisions and business failure. For example, a business owner might spend time and money developing a product that she believes in without surveying customers and studying production costs to gauge whether the product could be profitable 4. Some other factors that can contribute to bankruptcy include poor business location, loss of key employees, lawsuits raised by competitors and personal issues like illness or divorce. Unforeseen disasters and criminal activity like floods, storms, fires, theft and fraud can also cause hardships that lead to bankruptcy.
1. If you cannot bail out your business with private funds, you need to identify areas where you can reduce costs. Perhaps you can sublease unused space or sell off unused equipment. While shrinking your workforce is not an attractive option, it may be necessary to keep your business alive. 2. Stay connected with your customers, and seek out ways to increase your exposure and/or improve your business model, and thus your revenue. Offer your best customers markdowns if they can pay you quicker. You should also contact your suppliers to arrange discounts and/or deferred payments. 3. Contact every creditor, and advise them of your predicament. Ignoring your lenders can only make matters worse, while tackling a debt problem is easier when you act early. Since it’s in everyone’s interest to find a solution, request that your lenders work with you to lower interest rates, increase your credit line or restructure your repayment options. 4. You can consolidate your business loans into one payment, which may reduce monthly costs without negatively affecting your credit. A business debt consolidation loan can allow you to deal with a single creditor, rather than many, and perhaps get a loan with a lower interest rate. The process can be facilitated by a debt consolidation company hired to take responsibility for negotiating the new loan, collecting payments from your business, and paying off your previous creditors. The loan may be unsecured or secured with business assets.
