Bankruptcy: Chapter 7 And Chapter 11

By Author: Victor Kaiser
Total Articles: 12
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Bankruptcy, as immediately processed in our brains, is a bad word. It is a business term that does not imply anything positive. It suggests that something has gone wrong in an enterprise or a person - someone can't pay his debts, or some company cannot keep up with his expenses because his assets are not generating enough cash to keep the business alive.

Ironically, amidst the common understanding of how bad bankruptcy is, it sometimes can save you. When your business seems to go nowhere - assets are not generating money anymore, or there is no demand for your product or service, and your debt are not getting any thinner, it might be wise for you (if you're not forced by your creditors) to file Chapter 7 bankruptcy.

Chapter 7 bankruptcy is to liquidate your assets. To liquidate your assets is to sell your assets. By selling your assets, you generate cash which you can use to pay as much debts as possible so that your creditors never bug you again. This way, filing chapter seven, you can restart your financial life. By that, you can say that bankruptcy is not a bad thing at all. It can sometimes save.

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... is basically the story of a successful person who has been tried by fate. Gadi Leshe owns a Chatsworth, L.A. based company that provides flooring installations. The company also provides labor to builders, retailers, property managers, and designers. They facilitate and manage the schedule and the operations of client's floor installation project.

In 2009, Gadi Leshe announced that his company is bankrupt by filing chapter 11 in the bankruptcy court. Unlike chapter 7 that is liquidation, chapter 11 is reorganization. And unlike chapter 7, a business filing for chapter 11 has assets that can still continue working; its assets are still functioning and are still capable of generating cash. It just needs a reorganization, or restructuring.

By filing chapter 11, Gadi Leshe is required to propose a plan of reorganization. If no plan was approved by the court, the court can approve the case into chapter 7 - liquidation. Leshem's move was to sell 21 out 23 of his facilities, which then generated cash for him to pay debts while being able to still take hold of his own business.