Free Essay: Criticisms of the Bankruptcy System in the United States and its Impact on Businesses and the Economy

Bankruptcy is a legal procedure carried by either a person or a business that faces challenges in paying their outstanding debts. Commonly the process of the petition is started by the debtors; however, in uncommon circumstances, the creditor may champion the process (Coy, 2009). The asset held by the debtors are reevaluated and may be used in paying the debts. Although bankruptcy can give a business a fresh start, it stays on the credit report for several years, which restricts the ability to borrow in the coming years. Each nation has a bankruptcy system with bankruptcy laws and financing practices. The system is maybe having the benefits of saving the struggling businesses, but the negative side still exists. The paper summarizes the critics of the bankruptcy system in the United States.

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The weak and financially troubled businesses use bankruptcy as a vital means to get back to business. The Bankruptcy system has a role in evaluating whether the failed companies should be dismantled entirely or revived in full or partially. Failing business like using the bankruptcy route as a strategy of getting growth back to track. During a recession period in any given economy, more companies are expected to face difficulties in paying the debts (Coy, 2009). Businesses and institutions have mistreated the bankruptcy system for self-benefits.

The mismanaged corporations facing the risk of failure are propped up for a more extended period they should be as they are viewed to be too big for them to fail to lead to questioning of the bankruptcy system. The bankruptcy system's potentially viable businesses are mistreated by easily thrown to refuse heap and majorly the victims of the bankruptcy laws and practices, which are misguided changes (Coy, 2009). The banks and financial institutions take advantage of the system and issue complicated securities to the companies to kill them. They always have an interest in the companies targeted as they shall play a role in saving their operations. The actions have impacts on the nation, such as losing ore more jobs, less recovery, and less bubbly economy.

The revival of the failing business facilitated by the bankruptcy system encourages mismanagement of companies and institutions as they know the route to bet saved from debts and return to normal business operations (Coy, 2009). The institutions that are too big are the most beneficiaries of the bankruptcy system as the government often steps in and rescues them from being seen as too big to fail. Solving a failing nonfinancial company's affairs is hard in balancing the needs of the creditors and other stakeholders such as employees, suppliers, and the economy (Coy, 2009). The problem is solved as the system offer authority to the companies in making deals with the creditors. The administration has shown distrust in the bankruptcy system to resolving stakeholder's conflicts.

The bankruptcy system gives debtors a moment of working their problems through freezing the creditors' efforts (Coy, 2009). Yet, the system also allows the grabbing of the debtor's assets at the beginning of the case. The contradiction impairs the process of preserving jobs and revival of the distressed businesses. Creditors are therefore employing the trick of structuring loans to be derivatives for priority consideration in payments (Coy, 2009). The bankruptcy system prefers the high-profile companies facing financial crises than the low-profile companies without considering the aspects of innovations, growth, and investment. The high-profile survivors of bankruptcy are less innovative and contribute less to economic growth while the low-profile businesses are more creative and likely to grow the economy (Coy, 2009).

Conclusion

I think the criticisms on the bankruptcy system are valid considering the consequences present. The system promotes the survival of the big recognized companies, which have fewer contributions to the economy for being less innovative and effective (Coy, 2009). Also, the dismantling of small businesses as a result of bankruptcy raises the unemployment rate and lowers the economic growth rate. The weak companies with bankruptcy records are unable to borrow for new projects; thus, investment remains distressed and economic growth is held back.

References

Coy, P. (2009). Failure: A Bankrupt Idea. Bloomberg.com. https://www.bloomberg.com/news/articles/2009-05-13/failure-a-bankrupt-idea.