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Typically, when a business is owed money by a company that files for bankruptcy, the business will...?

Talk about declaring bankruptcy, the issues involved and it's suitability to your financial problems

Typically, when a business is owed money by a company that files for bankruptcy, the business will...?

Postby bradford » Wed Mar 14, 2012 10:53 pm

A. Get back very little of the owed money.
B. Always be paid in full by the company.
C. Eventually be paid in full by the company, plus interest.
D. Be paid by the government once the filing for bankruptcy has been approved.
bradford
 
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Typically, when a business is owed money by a company that files for bankruptcy, the business will...?

Postby langley » Wed Mar 14, 2012 10:56 pm

(A) If the business owed (creditor) is considered a general unsecured creditor (creditor will receive very little, if any)
(B) If the creditor a secured creditor (creditor will receive most, if not all)

See explanation below:

The creditor should receive a notice from the U.S. Bankruptcy court about 15 days after the company files for bankruptcy which gives the details as to what steps you need to take like attending creditors meetings, filing a claim, deadlines, etc.

Once the company files bankruptcy, the creditor can no longer send bills, call or place suit against them to try and get the money. The creditor can only file a claim and wait.

The order in which creditors get paid and the amount they are paid depends on what type of creditor they are.

Creditors usually get paid very little of what they are owed in a bankruptcy.

Creditors are repaid in this order:
1. Secured Creditors- Those that give secured loans for things like mortgages and vehicles.

2. Employee claims for wages

These first 2 will get the majority, if not all of the money the company owes.


3. General Unsecured Creditors- A general unsecured creditor often gets a small amount of what they are owed, if anything at all. Once the Secured Creditors and Employee claims are paid, the remainder is distributed equally between the General Unsecured Creditors. If there is not enough to pay a general unsecured creditor in full, it is highly unlikely the creditor will be able to receive the remainder.

The creditor will not be liable for taxes for the uncollectable amounts and will account for them under "bad debt expense"
langley
 
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Typically, when a business is owed money by a company that files for bankruptcy, the business will...?

Postby fitz » Wed Mar 14, 2012 11:01 pm

In order to get paid, the business needs to file a claim. Depending on how the bankruptcy advances further and if it was secured, you need to wait accordingly. The order as to who gets paid first is determined on who faces the highest risk when issuing money to the company. There are chances you get paid some if not all the amount.
fitz
 
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