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Business Bankruptcy Explained.



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in just the past two weeks Gold's Gym

JCPenney and Neiman Marcus have all

filed for bankruptcy and unfortunately

this is just the tip of the iceberg many

more companies are going to be filing

bankruptcy over the next few months and

in this video I'm going to break down

exactly what that means for these

companies

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so like I mentioned we're going to be

talking about business bankruptcy in

this video now there are several

different kinds of bankruptcy there's

special bankruptcies for farmers

there's bankruptcy for individuals but

will mostly be covering the two main

business type filings for bankruptcy in

the u.s. in this video now many people

are actually confused and they hear when

a company goes through bankruptcy they

think that means the company has gone

forever they're never going to be able

to do business again and that's not

really the case in one of these

scenarios there's a lot of confusion

around it so we'll go ahead and break it

down in this video now there's two main

types of bankruptcy filing for

businesses in America there's chapter 11

known as reorganization and chapter 7

known as liquidation now if you don't

know they're all written down in a book

in different chapters couple cover

different types of bankruptcies that's

basically why they just referred to them

as the chapter chapter 11 covers this

chapter 7 covers this but we'll cover

these main two we're going to start with

chapter 11 because it kind of leads into

chapter 7 so chapter 11 happens

basically when a company has too much

debt versus how many assets they have

and there's just no way they can ever

pay down the debt that they have so they

go into bankruptcy and that prevents any

further interest accruing on the debt

that they have and they can work with

the court system and the creditors that

they owe money to and potentially pay

down their debt now the creditors the I

mean the the court system will actually

decide what kind of decrease in the debt

that they owe will happen to that

company so so potentially the court

system could decide basically we're just

going to cut out all of your interest

you still have to pay all the debt and

then once all the debt is paid back to

the creditors you leave bankruptcy but

in certain scenarios potentially even

the credit even the debt that they have

is just too much money they won't be

able to pay it back and the court

systems can actually crunch the debt and

say that the company only has to pay

back maybe 75 or 50 percent of the debt

that they own to the creditors and once

they pay back the 50 percent or so

they're completely debt free they can

leave bankruptcy and continue on with

their business now obviously this isn't

the best case scenario for the creditors

but it's actually a better scenario than

if the company were to file chapter 7 so

in many cases the creditors are happy to

get back at least a portion of the money

that they were owed to these business

now one thing I want to point out pretty

much every business that files for

bankruptcy will initially file a for

chapter 11 bankruptcy however the court

system can decide later on the look at

their debt and if they have too much

debt they can actually shift a company

to chapter 7 bankruptcy now chapter 11

bankruptcy was designed to keep

businesses together to be able to make

them potentially be profitable again

that's why it's there it's made to

protect companies many companies over

the years have actually filed for

chapter 11 bankruptcy gone through the

bankruptcy process and come out the

other end as profitable companies so

several of them were GM you no GM

they're the car manufacturer in 2008

they filed for chapter 11 bankruptcy

they paid down their debt and they came

out of bankruptcy in the air profitable

country-pop profitable company right now

I don't know in 2020 based on everything

that's going down if they're profitable

right now but they were profitable for

the past several years Marvel many

people don't know Marvel Entertainment

you know comic books with all the

superheroes before they were bought with

Disney back in the 90s they actually

declared bankruptcy as well

they went through the breakup she

process came out the other end were a

profitable company and then they were

bought by Disney years later and then

Six Flags as well Six Flags owns many

amusement parks all across the u.s. they

also declared bankruptcy several years

ago and since then have come through

bankruptcy and are now a profitable

company again now one thing that I do

want to mention while chapter 11

bankruptcy is there to protect companies

companies really should only go through

bankruptcy as a last resort and

basically that's because after they go

through bankruptcy more companies more

lenders are very unlikely to lend money

to these companies because they know

those companies are not financially

stable they know they just got through a

bankruptcy and so they're very unwilling

to lend future credit to these companies

going forward and if they do lend credit

it will it be much higher interest rate

so generally you don't want to go

through a bankruptcy unless you

absolutely have to if you have to save

the company to lower your debt by going

through bankruptcy but if you go through

chapter 11 you can become a profitable

company after now let's talk about the

second one and that is chapter 7 known

as liquidation bankruptcy and this is

the type of bankruptcy that you

absolutely want to avoid as come

basically this means that all of your

assets will be sold off we all know Toys

R Us they went out of business several

years ago Toys R Us is a company that

went through Chapter seven bankruptcy

and basically that means all of their

assets were sold off whether that be all

the toys in their store as well as all

of the stuff in their offices as well so

like let's say they had a forklift in

their back supply center where they get

supplies you know from the the trucks

and they load it on they a forklift they

would have to sell those forklifts to

potentially pay off the credit as well

and their offices as well so maybe they

have a main headquarters where they have

desk and computers and chairs all of

that everything is sold off in a

liquidation to potentially pay back the

debt adores get as much money into the

creditors hands because the company has

basically no money to give these

creditors to pay off their debt so

everything the company own whether that

be property rights anything buildings

everything is sold liquidated to pay off

the creditors so basically that means

the company no longer exists if they go

through a chapter 7 bankruptcy now one

thing I want to point out most companies

do not initially file for a chapter 7

bankruptcy most of them will file for a

chapter 11 that's what toys arrested

they initially filed a chapter 11 and

then the court systems decided that they

were a completely broke company they

were massively in debt and they were

hemorrhaging money every single month

and there is no way that this company

could ever be profitable again so the

court system said no we're switching you

over to a chapter 7 relating all your

assets you're going away completely now

in many cases in a chapter 7 bankruptcy

even if a company goes out of business

they'll potentially still have assets

that are worth money it's not enough

money to keep the company afloat but

these assets they have could be

profitable down the line one example of

that is a company called Interstate

bakeries interstate bakeries owned

several different companies one of the

companies that they owned was the brand

hostess hostess makes Twinkies Ding

Dongs all those fun snacks you may have

heard a few years ago people were saying

hostess they're going bankrupt actually

the company owned them interesting

bakeries was the company that was going

bankrupt but they still had profitable

assets like hostess and what happened

was they ended up selling in liquidation

interstate bakeries went into

liquidation and they sold hostess and

all of the rights to all their

products Twinkies and Ding Dongs they

sold them to another company and now

this other company is actually making

hostess products and selling all of

those products a hostess is owned by

another company now and they actually

make plenty of money but that's what

happens in a liquidation your assets if

you have anything of value will be sold

off to another company and then those

other companies or creditors can use

those assets however they see fit now

one thing I want to point out like I did

say earlier pretty much every company

when they filed for bankruptcy will file

a chapter 11 so all of these companies

that recently filed Gold's Gym

neiman-marcus JCPenney they all filed

chapter 11 bankruptcy and that doesn't

technically mean they're going to go

away forever if you are interested in

these companies you need to keep an eye

on them because as long as they're in

Chapter 11 potentially they can reopen

and go on fine with their business but

if they do end up filing switching

they're filing to a chapter 7 if you

hear the switch they're filing basically

means that they're going out of business

all of their assets will be sold off and

you'll never hear from these companies

again so there you go those are the two

main types of bankruptcy filings for

business chapter 11 reorganization and

chapter 7 liquidation I hope you found

this video interesting if you did be

sure and leave a like and subscribe we

will have more great content coming up

soon thanks everyone to have a fantastic

day

you

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