18.5 Reorganization and Liquidation in Bankruptcy

  1. LG6

If the bankrupt firm and its creditors cannot agree on a voluntary settlement, creditors can force the firm into bankruptcy, or the firm may file for bankruptcy itself. As a result of bankruptcy proceedings, the firm may be either reorganized or liquidated. Although small businesses fail at a much higher rate than do large firms, the bankruptcies involving very large companies (some of which are featured in the Matter of Fact box below) sometimes lead Congress to enact legislative reforms designed to make such costly business failures less likely in the future.

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