A bankruptcy filing that moves through the legal system faster than an average Chapter 11 Bankruptcy filing.
Quick-Rinse Bankruptcy Details
Quick rinse bankruptcy is a legal proceeding that moves through the legal system in less time than any other bankruptcy proceeding. Quick-rinse bankruptcy is also known as a Controlled Bankruptcy; during the quick-rinse bankruptcy, negotiations occur before any other court proceedings. Negotiations can involve stakeholders, business partners, government, and/or other shareholders involved in the business. Negotiations can still take time to process, but doing these negotiations outside of court will move the actual court proceedings faster.
Companies first used Quick-rinse bankruptcy in 2008 during the global financial crisis that crippled many companies financially. It is a kind of bankruptcy that helps in the speedy recovery of the business's financial state and helps the company re-establish its operations; this is considered the main advantage of quick-rinse bankruptcy.
The car manufacturing giants General Motors and Chrysler were the first companies to use quick-rinse bankruptcy during the 2008 economic crisis. All negotiations took place outside of a courtroom, doing so allowed the companies to determine terms with their creditors faster. When pushed, the process can be completed in as little as 30 days, enabling the business to get back to work quickly. Failure to move quickly would have adversely affected the county's economic state and those companies that serviced their local communities.
Example of Quick-Rinse Bankruptcy
Company ABC faces a financial crisis and owes a large amount of money to its creditors for supplies used during its products' manufacturing. ABC executives have been trying for months to dig their way out of debt by securing more funding via investors and another line of credit, but they cannot do it; they decide the easiest way to get out from under their debt is to file for quick-rinse bankruptcy.
ABC executives discuss with its creditors and decide on settlement terms before filing quick-rinse bankruptcy. This filing facilitates smooth bankruptcy proceedings, lessening the time it takes to process the case. While the negotiated terms do not provide all the debt owed, the supplier is happy with the final results. ABC can now begin to rebuild its company without significant debt hanging over its heads.
Significance of Quick-Rinse Bankruptcy
A business or an individual can use quick-rinse bankruptcy. It is a process that helps an individual or business to repay any outstanding debts quickly. In this process, the borrower or debtor's assets are measured and evaluated to fully or partially repay the debt. Creditors can recoup some of the owed debt so that their own company can move forward.
While the common form of bankruptcy, Chapter 11, is an option for businesses and individuals, the process is time-consuming. Sometimes filing for bankruptcy takes years; during this time, the business or individual will continue to struggle to pay debts, pay employees, launch products making the financial issues grow larger. A quick-rinse bankruptcy allows the former bankruptcy process to move quickly so that restitution and recovery can occur.