Understanding the Difference Between Bankruptcy and Liquidation

Jonathan Koop graduated with a psychology degree from Northeastern University in Boston, Massachusetts. With a certification by Receivables Management Association International, he has extensive experience in receivables management and bankruptcy. In 2010, Jonathan Koop founded Bankrupt Debt Acquisitions, a company that facilitates the peaceful determination of bankruptcy debt worth liquidating.

Bankruptcy and liquidation are often mixed up and used interchangeably, but they are different terms. While both deal with insolvency – the failure to meet debt obligations – they are not the same.

Bankruptcy is a court action in which a business or individual declares themselves insolvent. It means that they must demonstrate to the court that they cannot pay back a debt. One of the methods a court uses during instances like this is to liquidate the assets of the business or individual. This means that the court pays creditors with funds from the sale of the bankrupt entity’s properties.

However, liquidation only applies to businesses or companies. When a business closes operations, its assets are liquidated—either redistributed or sold. After the settlement of debts, shareholders share the remaining funds.

In contrast, if liquidation occurs due to bankruptcy, it is more likely that only creditors receive payment after liquidation. In addition, voluntary liquidation happens when company owners decide to close up, while compulsory liquidation is a court-ordered process.

 

Difference Between Liquidation and Reorganization in Bankruptcy

A Certified Receivables Compliance Professional (CRCP), Jonathan Koop established Bankrupt Debt Acquisitions, where he also serves as CEO. Jonathan Koop specializes in the purchase and management of bankruptcy receivables.

The US bankruptcy law is covered by Title 11 of the United States Code. Under it, courts of law serve as a forum where various creditors can sort out their claims against the assets of a debtor when the assets are not sufficient to fully pay all the claims. The Bankruptcy Code also provides a lifeline for the debtor to reorganize and discharge pre-petition debts.

Generally, bankruptcy takes two forms: liquidation and reorganization. Here are their basic differences.

Liquidation, which is covered by Chapter 7 of the Bankruptcy Code, takes an inventory of all of the available assets of the debtor so that they can be sold through an appointed trustee. The proceeds are used to pay as much debt as possible. When these have been fully distributed, the debtor’s business is dissolved and its stock no longer has any value.

Reorganization is covered by Chapter 11. Reorganization protects a business when the value of debts exceeds the value of assets, and there are no available funds to pay the debts. Under Chapter 11, the owner retains possession of the business and continues to operate as a “debtor in possession.” The principle of “automatic stay” takes effect, which postpones all litigation and legal claims against the business until the time the company emerges from bankruptcy, or until the bankruptcy is resolved by a bankruptcy court.

Chapters 7 and 11 are available to both businesses and individuals. Chapter 13 is another reorganization program available to individuals or sole proprietors only.

Elements of the Fair Debt Collection Practices Act

Bankruptcy expert Jonathan Koop has extensive experience in the receivables management industry. A former Division I hockey player at Northeastern University, Jonathan Koop manages Bankrupt Debt Acquisitions as CEO.

Since its founding in 2010, Bankrupt Debt Acquisitions has helped organizations mitigate losses due to bankruptcies. The company makes clients its highest priority, and offers premium pricing for bankrupt portfolios. Moreover, Bankrupt Debt Acquisitions adheres to a business model that emphasizes regulatory compliance with associated legislation that includes the Fair Credit Reporting Act and the Fair Debt Collection Practices Act (FDCPA).

A United States federal law, the FDCPA sets limits on actions a third party debt collection agency can take when attempting to collect payments. The act, which was amended in 2010, defines the time of day collection attempts can be made and limits the number of contact attempts that can be made. Moreover, the FDCPA prohibits forms of debtor harassment that include threats of injury or arrest, profanity, and the threat of legal action.

Lendit FinTech Conference Showcases Financial Leaders

As the chief executive officer and founder of Bankrupt Debt Acquisitions of Scottsdale, Arizona, Jonathan Koop helps clients recover obligations from debtors that have gone into bankrutpcy. To enhance his knowledge, Jonathan Koop has attended numerous professional gatherings, such as the 2019 Lendit FinTech Conference, held in April 2019.

The meeting featured presentations from 30 members of the financial industry, representing corporations, government agencies, and the media. These presenters included:

- Shindy Chen. Ms. Chen is the founder of the new media company Scribe. She has made many television appearances and is the author of two books: The Credit Cleanup Book and Credit Score Hacks.

- Brandon Krieg. Krieg is the founder and CEO of STASH, a rapidly expanding platform for personal investing and banking. His 15 years of financial experience includes recent service at Macquarie Securities Group.

- Karen Gordon Mills. An author and fellow at the Harvard Business School, Mills led the Small Business Administration under the Obama Administration. A recipient of the US Navy’s Distinguished Public Service Award, she has been featured in Forbes, Fortune, and American Banker.

- Jan Lynn Owen. For the past 7 years, Owen has been the commissioner of the California Department of Business Oversight. She has also run her own practice and held positions at Apple, JP Morgan Chase, and the California Mortgage Bankers Association.

- Kathleen Utecht. A graduate of the Wharton School, Utecht is an entrepreneur and managing partner at Care Investment Capital. She maintains a professional interest in addressing global issues.

Types of Debt Not Covered in Chapter 7 Bankruptcy

A frequent attendee of the Debt Connection Symposium, Jonathan Koop is founder and CEO of Bankrupt Debt Acquisitions. With his extensive knowledge of bankruptcy, Jonathan Koop’s company has a successful record of accurately predicting the liquidation of bankruptcy debt.

Bankruptcy is a legal proceeding where individuals or businesses unable to settle current debts petition a court to dismiss the debt. In Chapter 7 bankruptcy, a debtor is permitted to hold on to key assets referred to as "exempt" properties, while other properties considered "non-exempt" are sold to pay part of his or her debt. However, some debts are not covered in Chapter 7 bankruptcies, which means the individual will still be responsible for them.

Liens on properties, such as a home mortgage, are not covered in bankruptcy. Chapter 7 bankruptcy doesn't include debts that were not in the name of the person filing the bankruptcy, so it is important for someone who intends to file for bankruptcy to be sure all debts included are in his or her name. Debts from reckless and willful acts, such as embezzlement, and fraud are also not covered. Often, recent credit card debts are not discharged in Chapter 7 bankruptcy. Unless there is proof a person is unable to repay their school loan debt, and they have been making an effort to do so, a court will not discharge such debt in Chapter 7 bankruptcy.