How does bankruptcy work?

The scariest part of Halloween as an adult is buying the candy. The candy inflation is insane! I’m going to start requesting tips from trick-or-treaters.

Bankruptcy isn’t the financial graveyard it sounds like. Think of it more like a ladder people and companies use to get out from rock bottom. 

Depending on the circumstances, you file bankruptcy in accordance with specific chapters in the book of bankruptcy rules.

Chapter 7: SELL IT ALL

Chapter 7 is the classic “everything must go” sale. When an individual or business files for Chapter 7, it means they’re out of money and can’t reasonably repay what they owe. So, they sell it all to pay creditors as much as possible.

For individuals, this might mean parting ways with your second car or some valuable property (don’t worry, basic things like clothes and your primary residence are often protected). It will stay on your credit report for 10 years… but your score will improve over that time with improved habits. 

For companies, this usually means the end of the road. The business gets dissolved, and whatever cash comes from selling its assets goes to creditors. It’s not pretty, but it clears the slate.

Chapter 11: Throw out the bathwater, not the baby 

Chapter 11 is what big companies use when they’re in trouble but not ready for the coffin. Think of it as taking a knee and recouping, kind of like an energy drink Power Nap: chug an energy drink, sleep for 20 minutes, and wake up with the caffeine flowing through your veins. It’s not a perfect solution, but it’s too late to go back and actually start that term paper on Middle East history instead of watching an hour long special on Australia’s universal health care - college, am I right?

When a company files Chapter 11, it doesn’t shut down. Instead, it keeps operating while renegotiating its debts under court supervision. Creditors may take less money, shareholders might get wiped out, and leadership might change, but the company gets a shot at survival.

Famous examples? General Motors, Hertz, and Marvel (yes, before Iron Man, Marvel filed Chapter 11 in the ’90s).

Chapter 13: You’re down but still fighting

Chapter 13 is for individuals who hit a rough patch but still have steady income. Instead of liquidating everything, Chapter 13 sets up a repayment plan, usually over three to five years, so people can pay off part (or sometimes all) of their debt.

In Chapter 13, you raise the white flag and bring in a trustee and the courts to oversee an approved plan. The trustee coordinates between you and your debtors to ensure you follow the payment plan. You maintain assets thanks to a steady income but lose control and trustworthiness (credit score). 

Chapter 12: The farmers’ and fishers’ lifeline 

This one is rare but worth mentioning. Chapter 12 is designed specifically for family farmers and fishermen. It recognizes that their income can swing wildly with harvests or catch seasons, so it provides flexible repayment terms.

Bankruptcy might sound terrifying, but it’s really a system built for recovery and accountability, not punishment. Whether it’s a family struggling with debt or a company drowning from poor projections, bankruptcy laws are designed to keep people and the economy from staying buried forever.

Debrief on Deck

Next week, we will not be releasing an October debrief because of the government shut down… I am kidding. You can rely on me to give you the October vibes report since official data is still paused.

As always, please reach out to us with any questions or comments you have by replying directly to this email.

Until then, stay the course.

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