Chapter 7 bankruptcy & Chapter 11 Bankruptcy Voluntary Petition. CPA Exam REG

In this video, I discuss chapter 7 and chapter 11 bankruptcy voluntary petition.
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The U.S. Bankruptcy Code sets out specific rules for who can file for bankruptcy and under which chapters they can do so. Here's a simplified explanation with an example:

Eligibility for Bankruptcy: Only those residing or having a business in the U.S. can file for bankruptcy. This includes individuals, partnerships, and corporations.

Chapter 7 Liquidation Restrictions: Chapter 7 involves liquidating assets to pay off debts. However, certain entities like railroads, savings institutions, insurance companies, banks, and small business investment companies are not allowed to file under this chapter.

Chapter 11 Reorganizations Comparison:

Broader Eligibility: Most entities eligible under Chapter 7, except stockbrokers and commodity brokers, can also file under Chapter 11. Additionally, railroads, which can't use Chapter 7, can use Chapter 11.
Purpose: Chapter 11 is mainly for businesses to reorganize their debts while continuing operations.
Individual Eligibility: It's not just for businesses; individuals can also file under Chapter 11.
Example: Imagine a small tech startup facing financial troubles. The company can file for bankruptcy under Chapter 11. This would allow them to restructure their debts and continue operating, trying to become profitable again. They would negotiate with creditors to alter the terms of their debts, maybe by reducing the debt amount or extending payment periods. This process helps the company to get back on its feet without completely dissolving it, as would be more likely under Chapter 7.









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