While Chapter 7 and Chapter 13 bankruptcies are most certainly not the taxpayer’s responsibilities, what about the large, international companies that go bankruptcy under Chapter 11 bankruptcy law? Do taxpayers pay for bankruptcies in this category? This is a legitimate question in the wake of the massive bankruptcies that have taken place over the past decade from the likes of Leman Brothers, Washington Mutual, and General Motors
Basically, a company faces bankruptcy when it has more debt than it can pay. When they file Chapter 11 bankruptcy they gain protection from creditors in order to get out of the debt or set up a repayment plan to stay in business (the same as an individual choosing either Chapter 7 or Chapter 13 bankruptcy). This is a fairly well working system for small to medium sized businesses that are either able to liquidate the company’s assets and close up shop or work out a deal with their creditors through the courts and work towards becoming profitable again. However, when a company worth $691 billion declares bankruptcy what happens? In 2008 this happened when Lehman Brothers went bankrupt and was able to pursued Congress to authorize several billion in tax payer money to protect the other big banks from going under.
While the Lehman case was a rarity in America, the truth of the matter is that hard working Americans are sometime negatively affected when companies go bankrupt. Even without a bailout, individuals are left unemployed as a result and in some dire circumstances, the local economy is damaged leaving lower home prices and decreasing opportunities for employment. If you have been laid off and can’t afford your monthly mortgage payments, bankruptcy can also be used by the individual to prevent foreclosure and repossession. Call your local bankruptcy attorney today to find out what your debt relief options are.