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Corporate Bankruptcy in the USA: Understanding the Different Types

GeneralEdward Kiledjian

This post is for informational purposes only and does not constitute legal advice. It is important to note that every individual and business's situation is unique, and it is always best to consult with a licensed and qualified professional for specific legal advice. This post should not be relied upon as a substitute for professional legal advice.

In the United States, there are several types of corporate bankruptcy businesses can file for to restructure their debts or liquidate their assets. Here are the main types:

  1. Chapter 7 Bankruptcy: This type of bankruptcy is also known as "liquidation bankruptcy," as it involves the sale of a company's assets to pay off its debts. The company's assets are liquidated, and the proceeds are used to pay off its creditors. Any remaining debts are then discharged. Chapter 7 bankruptcy is typically used by small businesses that do not have the resources to restructure their debts.

  2. Chapter 11 Bankruptcy: This type of bankruptcy is often referred to as "reorganization bankruptcy," as it allows a company to restructure its debts and continue operating. Under Chapter 11 bankruptcy, the company creates a plan to repay its creditors over time. This plan must be approved by the court and the company's creditors. Chapter 11 bankruptcy is often used by larger businesses that can restructure their debts and continue operations.

  3. Chapter 12 Bankruptcy: This type of bankruptcy is similar to Chapter 11 bankruptcy, but it is specifically designed for family farmers and fishermen. It allows these individuals to restructure their debts and continue operating their businesses.

  4. Chapter 13 Bankruptcy: This type of bankruptcy is also known as "wage earner bankruptcy," as it is typically used by individuals who have a regular income but cannot pay their debts. Under Chapter 13 bankruptcy, the individual creates a repayment plan to pay off their debts over three to five years.

It's important to note that bankruptcy should be a last resort for businesses and individuals, as it can have serious consequences, including the loss of assets and damage to credit scores. However, for some companies and individuals, bankruptcy may be the only option for dealing with overwhelming debts.

Keywords: corporate bankruptcy, bankruptcy types, Chapter 7, Chapter 11, Chapter 12, Chapter 13, liquidation bankruptcy, reorganization bankruptcy, family farmers, fishermen, wage earner bankruptcy

What is a recession

GeneralEdward Kiledjian

A recession is a significant decline in economic activity spread across the economy, lasting more than a few months. It is visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. The United States defines a recession as "a significant decline in economic activity spread across the economy, lasting more than a few months."

The most popular definition of a recession is two consecutive quarters of declining GDP.

A recession begins just after the economy peaks and ends as it reaches its trough. Between the peak and the trough, there is a decline in real GDP.

Recessions are generally accompanied by a drop in the stock market and increased unemployment. There are several causes of recessions, but most can be summed up by saying that a lack of demand causes them. When there is less demand for goods and services, businesses cut back on production and lay off workers.

There have been 33 recessions in the United States since 1854. The most recent started in December 2007 and ended in June 2009. This was the longest recession since World War II.

The Great Depression of the 1930s was the worst economic downturn in US history. Real GDP fell by 26%, and unemployment rose to 25%.

Who determines if the US economy is in a recession?

The National Bureau of Economic Research (NBER) is a private, nonprofit research organization that is considered the official arbiter of US recessions. However, the NBER does not announce when a recession starts or ends in real-time; instead, they declare retrospectively.

How long do recessions last?

Recessions can last anywhere from eight months to two years. However, the average recession since World War II has lasted about 11 months.

How does an economy come out of recession?

The economy typically comes out of recession when GDP grows again, and unemployment starts to fall. This can happen when businesses begin to invest and hire again, and consumers start spending more money.

The Federal Reserve can also help by lowering interest rates and increasing the money supply. This makes it easier for businesses to get loans and invest and for consumers to borrow money and spend.