Discharge in Corporate Bankruptcy

Discharge in bankruptcy is based on the type of bankruptcy filed.

Companies struggling to stay afloat can file for a Chapter 7 or Chapter 11 bankruptcy, depending in part on how much money they owe. The type of bankruptcy filed for determines the type of discharge granted by the court and how it affects the company that filed for bankruptcy protection.

Different Bankruptcies

Chapter 7 bankruptcies are typically for individuals, but a court can place a company in this chapter if the plan is to sell off all assets because there is too much debt. A Chapter 11 allows a reorganization of a business by creating a payment plan in the hope of saving the company.

Chapter 7 Discharge

A discharge in a Chapter 7 is granted quickly, usually within months of a meeting with all creditors. This discharge dissolves the company and its debt.

Chapter 11 Discharge

Any discharge in a bankruptcy must be granted by the courts.

Chapter 11 discharges can take longer because a court-appointed trustee manages the payment of any business plans that arise after the bankruptcy is filed. Any debt incurred before the filing is made non-recoverable. The company must follow the plan agreed to in court, and any big decisions must be approved by the judge.

Considerations

A Chapter 7 bankruptcy wipes out any value for stockholders, according to the Securities and Exchange Commission. A Chapter 11 bankruptcy allows stock to continue trading in most cases. Chapter 11 bankruptcies can take a few months to a few years to discharge, depending on the amount of debt and the reorganization plan.

References

• US Bankrutpcy Laws
• SEC Rules

Resources

• Moran Law Group