In our sad economic state, more and more businesses are finding themselves hard-pressed. It seems every week a new business, once stable and healthy, is under fire and filing bankruptcy. Clearly, not a good thing, and obviously a last resort, but what exactly does it mean when a business files for bankruptcy, and what happens when they do?
Filing for bankruptcy is a process in which a business or business account with severe debt is examined to see what debt can be forgiven.
After a company files for bankruptcy, the filer meets with their bank or creditors to review their assets and determine what debt from the assets can be forgiven. The collateral for the debt is examined and if the collateral is worth less then the debt, the debtor can either pay the debt in cash or hand in the collateral for a full compensation for the debt. If the collateral is worth more then the debt, the debt must be paid or risk loss of the collateral.
After filing bankruptcy, it stays on your credit report for 7 years, as does the debt that was determined by the creditors, which can make loans and mortgages very difficult to obtain and very expensive.
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