What two chapters of the U.S. Bankruptcy Code are most important for ventures considering legal bankruptcy?

What two chapters of the U.S. Bankruptcy Code are most important for ventures considering legal bankruptcy?

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July 10, 2021
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What two chapters of the U.S. Bankruptcy Code are most important for ventures considering legal bankruptcy?

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Two most important chapters for legal bankruptcy:

Chapter 7: It specifies the rules and regulations that should be followed by the venture during the liquidation. In this, a venture liquidates its assets with the help of a third party to pay its debt obligations. The third party is appointed by the federal bankruptcy court to avoid fraud and provides fair allocation of the assets among the claimants of the venture. A venture has to go through Chapter 7 when it fails to reorganize the venture by using Chapter 11.

Chapter 11: It specifies the methods to reorganize the venture. The restructuring program that is proposed under Chapter 11 should be reasonable for the creditors of the venture. As per Chapter 11, not only venture but also creditors can propose the restructuring plan. It helps the venture to fulfill its short-term liquidity requirement. In this, a venture takes help from all of the creditors to fulfill the liquidity requirements which is known as debtor-in-possession financing. Or the venture uses prepackaged bankruptcy, in which the venture tries to convince the creditors to go along with the reorganization program. The debtor-in-possession financing is only allowed to those ventures who have filed for Chapter 11 of bankruptcy protection.

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