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Unformatted text preview: What are some of the differences in U.S. bankruptcy laws and those in place internationally? What incentives do these differences provide for U.S. managers and for their peers in most other countries? There are similarities in the bankruptcy codes of all advanced economies, but in many ways the differences between these codes are the most important factors in explaining capital structure variations. In the United States, there are two principal types of bankruptcy filings. A Chapter 7 filing is an application for liquidation of the firm’s assets and distribution of the proceeds according to the absolute priority rule, whereby secured creditors are paid first, then unsecured creditors, then preferred shareholders, and finally common stockholders. A Chapter 11 filing is a petition for reorganization of the firm’s liabilities with the implied intent that the reorganized company will continue to operate as an independent business. Once a bankruptcy court judge accepts a petition, the court issues an order barring creditors from further prosecution of claims, except as allowed by...
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This note was uploaded on 10/15/2011 for the course FIN 550 taught by Professor Smith during the Spring '11 term at Berklee.
- Spring '11