Question

Analyze the various types of bankruptcy options available to an individual client. Based on your analysis, recommend the most advantageous bankruptcy option for your client. Support your recommendation with one (1) example of such a bankruptcy option.

Answer 1

LIQUIDATION: CHAPTER 7 BANKRUPTCY

Most bankruptcies filed in the United States involve liquidation, which is governed by Chapter 7 of the Bankruptcy Code. In a Chapter 7 liquidation case, a bankruptcy trustee collects the debtor’s non-exempt property and converts it into cash for the benefit of unsecured creditors. If the property is exempt or encumbered to the point of having no equity beyond the amount of the exemption, the trustee will abandon the asset. An abandonment means that the bankruptcy estate will not sell the asset or otherwise take an interest in the asset.

CHAPTER 11 OR CHAPTER 13 BANKRUPTCY

In a rehabilitation or reorganization, the option courts often prefer, creditors may be provided with a better opportunity to recoup what they are owed. Chapter 11 or Chapter 13 of the Bankruptcy Code governs this type of bankruptcy. Chapter 11 usually applies to individual debtors with excessive or complex debts, or to large commercial entities like corporations. Chapter 13 usually applies to individual consumers and to some small businesses with debts that fit within the boundaries of Chapter 13. (Farmers and municipalities may seek reorganization through the code’s special chapters, Chapters 12 and 9, respectively.) Reorganization provides a greater opportunity to retain assets if the debtor agrees to pay off debts according to a plan approved by the bankruptcy court. If the debtor fails to do so, however, the court may order liquidation.

In the absence of specific information about client, I am assuming here that is just a general case of a compnay, in which I would suggest them to go for Chapter 11 bankruptcy optiom.

Case of Enron can be cited as an example of Chapter 11 bankruptcy when it had revenue of $ 111 Billion and more than 21000 employees.