Iggles Incorporated is in financial trouble. It is considering filing for bankruptcy protection. Explain the two...
Iggles Incorporated is in financial trouble. It is considering filing for bankruptcy protection. Explain the two bankruptcy options available to Iggles Inc. and the general characteristics of each? What are the benefits and drawbacks of each? Why would Iggles choose one option over the other?
Homework Answers
The two bankruptcy options available to Iggles Inc, are :
1. Chapter 7 bankruptcy
2. Chapter 11 bankruptcy
Characteristics of chapter 7 bankruptcy are :
a. In this bankruptcy creditors can recover the debt amount through division of assets among the creditors as debtor is unable to pay the debt amount.
b. The petition can be filled voluntarily or involuntary by the debtors in case business has some financial troubles and unable to carry on business process.
Characteristics of chapter 11 bankruptcy are :
a. It is filed to reorganize the debts, assets of the business, which gives debtor a fresh start in business.
b. In this form of bankruptcy the debtor remains in control of the business operations.
Benefits of chapter 7 bankruptcy :
a. Processing time for chapter 7 bankruptcy are less that is around three to six months as compared to other bankruptcy.
b. Debtors walk away debt free once the bankruptcy is completed.
Drawbacks of chapter 7 bankruptcy :
a. Chapter 7 bankruptcy remains on the credit report for almost 10 years as compared to chapter 13 which is 7 years which creates a negative impact upon on credit of the debtor.
Benefits of chapter 11 bankruptcy :
a. It helps to create a reorganizing plan for organization instead of dissolving it.
b. It will help debtors to get reduced interest rates or reduced amounts upon the debts under chapter 11 bankruptcy.
Drawbacks of chapter 11 bankruptcy :
a. Its costly and long process for business as it costs legal and filing fees and making the business pay the old debts for longer period of time in some cases for years.
Iggles must choose the chapter 11 bankruptcy options over chapter 7 bankruptcy as in chapter 7 their assets will be immediately liquidated but in chapter 11 they will be given time to restructure the business while continuing the operation.
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