For the layman, it is sometimes difficult to comprehend how two inconsistent situations co-exist. Bankruptcy and death is easily understood. Bankruptcy seems to imply that the bankruptcy entity or person is financially dead. But, bankruptcy and recovery? How is that possible? Perhaps we should pose this question to Mr. Trump. His companies have filed for bankruptcy reorganization several times and as recent as 2004. Yet his companies emerge from bankruptcy court leaner and are profitable once more. In fact, Mr. Trump advocates that the Big 3 carmakers of Detroit, GM, Ford and Chrysler, should go through bankruptcy instead of being given bail out funds so they can continue operating. Practically all of the major airlines have gone through bankruptcy since the Sept. 11 attack. But they still operate, and we still continue to ride on the planes of airlines that have been bankrupt. Some of these airlines have been in and out of bankruptcy court for the last eight years. When was the last time you flew on United or Delta. Both emerged from bankruptcy court as leaner and profitable companies. Even Kmart was in bankruptcy 10 years ago. Yet we still buy things from Kmart today.
I think it is safe to say that nowadays, bankruptcy is a fact of life, and there is no stigma attached to it. We buy from national retailers that have been bankrupt. We fly with airlines that have been bankrupt. We hold Mr. Trump in high esteem even though his companies have been bankrupt several times. In fact, we see Mr. Trump as the number one guru on how to create wealth and become a millionaire, indeed, even a billionaire. He can teach us a thing or two in wealth creation.
In business, bankruptcy leads to recovery because bankruptcy law allows the business to shake off debt that it cannot repay and to break out of contracts that is detrimental to it while allowing the business to continue operating in the "business as usual" fashion. As a result, the business is able to generate positive cash flow and eventually recovers. Without being able to get rid of debt and break out of contracts, the business has to use its cash to pay debt and honor contracts, instead of using the cash for operations and to generate a profit. After everything is said and done, a business has no business doing business if it cannot generate a profit at some point in time. Thus, in bankruptcy reorganization, the sine quo non standard to successfully emerge from bankruptcy court is to convince the court that the business will be able to generate a profit within a short period of time if it is able to get rid of a significant portion of its debt and if it is allowed to dishonor particular contracts. If the business cannot show eventual recovery and profitability after debts and contracts are nullified, the court will liquidate the business instead of allowing it to reorganize. Recently, Circuit City, the no. 2 electronics retailer in the country, filed for Chapter 11 bankruptcy reorganization. The plan was to sell the business to a major Mexican electronics retailer, which intended to close all US Circuit City stores, except for 350 profitable ones. When the Mexican buyer changed it’s mind, Circuit City could not propose a feasible business plan out of bankruptcy forcing it to convert it’s Chapter 11 case to a Chapter 7 case, a liquidation.
For individuals, a bankruptcy is either a Chapter 7 sometimes called a ‘Fresh Start’, or a Chapter 13, sometimes called "Consolidation or Reorganization." In a Chapter 7, debtor gets rid of all debt but is allowed to keep most, if not all, of his assets. Without debt but with assets and income intact, debtor is given a fresh start in life and becomes productive again. This is a good thing. Take advantage of this law if you qualify.
If you need debt relief, contact my office. I will analyze your case personally.
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Lawrence Bautista Yang specializes in bankruptcy, business, real estate and civil litigation and has successfully represented more than five thousand clients in California. Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 1000 S. Fremont Ave., Bldg. A-1 Suite 1125 Unit 58, Alhambra, CA 91803.
( Published on February 7, 2009 in Asian Journal Los Angeles p. C5 )
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