Mergenthaler mgm230 1103 b-04

MGM230-1103B-04 Introduction to Business LawPhase 4 Individual Project

Sabrina MergenthalerColorado Technical University

Professor Wendy McKainSeptember 12, 2011

Bankruptcy

What is Bankruptcy?

Types of Bankruptcy• Chapters 1,3, and 5

Definitions and provisions

• Chapter 7Liquidation

• Chapter 11Reorganization

• Chapter 12Adjustments of debts of a family farmer

of fisherman with regular income

• Chapter 13Adjustments of debts of an individual

with regular income

(Cheeseman, 2010)

2 parties--Creditor & Debtor2 types of debt--Secured Vs. Unsecured

Acts • BANKRUPTCY ACT OF 1878Original article depicting the laws of

bankruptcy• BANKRUPTCY REFORM ACT OF 1978

Easy to file bankruptcyDischarge of debt

• BANKRUPTCY ABUSE PREVENTION & CONSUMER PROTECTION ACT OF 2005

More difficult to file bankruptcyLess discharge of debt

(McKain, 2011)

Purpose•Enables debtors to seek relief from debt•Restart operations•Protection from abusive activities by creditors•Prevents creditor advantages over each other•Creditor protection from debtor•Speedy, efficient, and Equitable distribution of assets•Preserves business

(M.U.S.E., 2011)

Tests for Chapter 7 Bankruptcy•Median Income Test- Does income exceed or sit below the state’s median family income index.

•Means Test- a complicated method of calculation that reflects whether the debtor has the ability to pay.

(Cheeseman, 2010)

Georgia

Requiremen

ts

Risks•Loss of assets•Irreversible•Handicaps business operations•Loss of business•Appointment of a trustee

• Most complex filing

• Favorable for businesses

• Debtors-in-possession

• No trustee

• Creditors’ Committee

• Actions of creditors suspended

• Business continues to operate

Higher Filing Fees Due to Court Fees

AdjustmentsBankruptcy

• Intended for individuals

• Similar to chapter 11

• Individuals have 90 days to define a plan

• 3-5 year plans

• Certain Requirements must be met

• Trustee appointed

• Plans may be modified

• Limitations of debt amount

• Categorizing of debt

Georgia Requirements

BENEFITS AND DRAWBACKSBenefits

• Fresh start• Protection from creditor collection efforts• Protection from wage garnishment• Protect assets claimed after filing• No minimum debt required to file

• Quickness of results• Debt discharge/reduction

Drawbacks• Decreases credit score

• Loss of assets• Irreversible

• Remains on credit history• Risk of criminal activity

• Risk of conversion to Chapter 7• Invasion of privacy

Chapter 7

• Trustee appointed

• No business future

• Suing of partners

• No discharge of debt

• Partner can buy out partner

Chapter 11

• Business will survive

• Self trustee

• Work with creditors

• Retention of assets

• Complex

Sheer & Deer AssociatesConfirmation to file

Decision•File

•TypeChapter 11

•ReasoningContinued operationsRetention of assetsAbility to work with creditorsDebt reduction/discharge

•ProcessFileContinue regular operating costsOperating reports generatedSubmit disclosure statementSubmit plan of actionCreditor/Court approvalCarry out plan

References

Marples, G. (2008). The History of Credit Cards – It All Started In The 18th Century. Historyof.net. Retrieved from http://www.thehistoryof.net/history-of-credit-cards.html

A brief History of Bankruptcy. (2011). BankruptcyData.com. Retrieved from http://www.bankruptcydata.com/Ch11History.htm

Cheeseman, H. (2010). Business Law: Legal Environment, Online Commerce, Business Ethics, and International Issues, Seventh Edition. Pearson Prentice Hall: Upper Saddle River, New Jersey

McKain, W. (2011). Colorado Technical University. Introduction to Business Law. Live Chat 7

M.U.S.E. (2011). Colorado Technical university. Introduction to Business Law. Retrieved from https://campus.ctuonline.edu/courses/MGM230/p4/hub1/hub.html

Silverman, J. & Grabianowski, E. (n.d.). How Bankruptcy Works. How stuff works.com. Retrieved from http://money.howstuffworks.com/personal-finance/debt-management/bankruptcy1.htm

Bankruptcy. (2011). State Bar of Georgia. Retrieved from http://www.gabar.org/communications/consumer_pamphlet_series/bankruptcy/

Georgia Bankruptcy Law. (2009). Georgia Bankruptcy.com. Retrieved from http://www.georgiabankruptcy.com/7v13.html