Bankruptcy and Bankruptcy Code

This essay is published for informational purposes only.  It is not legal advice, nor is it intended as a substitute for the advice of your attorney.

The term "Bankruptcy Code" is the informal name for Title 11 of the United States Code, the federal bankruptcy law.  More broadly, bankruptcy is a process governed by federal law used when people or companies cannot (or will not) pay their debts. Bankruptcy is a legal process governed by federal law.

Every creditor company will experience a customer bankruptcy sooner or later.  In these difficult economic times, business bankruptcies are likely to occur more frequently.   To some extent, credit professionals can take some comfort in knowing that bad debts and bankrupties are an inevitable part of the credit department's efforts to try to maximize sales and profits.  Bad debt losses and bankruptcies are a cost of doing business on open account terms.  The key parties in a bankruptcy are:

• The Debtor
• The Creditors
• The Bankruptcy Judge/Court, and
• The Trustee

To protect your company's interests, you must know the roles each of these parties play; how they interact with each other; and how they can sometimes act at cross purposes.  The more you know about the bankruptcy process, within reason, the more likely you will be able to reduce your risk.

Source:  Michael Zininberg & Michael C. Dennis.  © 2011.  All Rights Reserved.