Bankruptcy is a legal status of a person, organization, or other entity unable to return the debts to creditors. Usually, in such cases people seek Chapter 11 protection from creditors to the court. This ends up the activity of the major organization, however, subsidiaries may still work in a normal regime.
When talking about bankruptcy, it is impossible to omit the history of Lehman Brothers, fourth largest US investment bank until 2008. Established in the middle of 19th century by German immigrants Henry, Emanuel, and Mayer Lehman it was indeed too big to fall (Wiggins, Piontek and Metrick, 2014). Currently it is possible to state that Lehman Brothers management simply underestimated the stability of real estate market (as many other companies and entrepreneurs). Yet, significantly increased number of credit default swaps buried the financial world in 2008 when millions of Americans delayed credit payouts and Lehman Brothers bankruptcy marked the beginning of one of the most global financial crisis after the Great Depression (Wiggins, Piontek and Metrick, 2014). Sure thing there are method to avoid bankruptcy even on a very late stage such as reorganizing or selling the business, however, Lehman had over $600 billion assets and none of the world companies would agree to pay such a debt.
Alternatives to filing a bankruptcy chapter may be valid in very specific situations. First of all, the overall situation on the market has to be stable (not as during the crisis). Then to make alternatives work, most of the top management must be reorganized to “breath the fresh air” into the company. After all, the organization assets have to be completely reorganized and most of them sold on an open auction to prevent any fraudulent activity (Sisolak, 2012).
References
Sisolak, P. (2012). 5 Ways to Avoid Filing for Bankruptcy. My Money. Retrieved from http://money.usnews.com/money/blogs/my-money/2012/05/16/5-ways-to-avoid-filing-for-bankruptcy
Wiggins, R., Piontek, T., & Metrick, A. (2014). The Lehman Brothers Bankruptcy. Yale Program On Financial Stability Case Study. Retrieved from http://som.yale.edu/sites/default/files/files/001-2014-3A-V1-LehmanBrothers-A-REVA.pdf
