Reading about Rite Aid filing for bankruptcy. They have 3.3 in debt. By claiming bankruptcy they just wash their hands of it? Who eats all the debt?
In: 20
So the type of bankruptcy that Rite Aid is filing for, is a Chapter 11, or a restructuring bankruptcy, it is the equivalent of the following:
Lets say you borrowed $10,000 from your parents to buy a car, because you got a job on the other side of the city, and for this example lets say that public transit does not exist. You buy your car and start working. You pay your parents back $500/month which includes interest.
Lets say that your job has a shutdown and they lay you off for the summer. You know that you will be going back to work in the fall, but for now your income has dropped off and you can no longer make the payments to your parents.
You have two options, you can either file chapter 7 bankruptcy, and tell your parents that you are out, you quit your job, and they can sell your car to get back whatever they can.
OR you can file chapter 11 banktuptcy, where your parents can decide to either let you skip some payments, or they can reduce the total that you owe. The idea being that if you lose the car come the fall, you will not be able to get back to work, and your parents pretty much lose every hope of getting their money back. They can agree away quite a lot in this stage and still be ahead of the chapter 7, as who knows how much the car will sell for, likely a fraction of the loan.
Once chapter 11 has completed, both parties hope that in the fall your income will come back and you go back to repaying, making everyone happy. Maybe you even get a raise, and are able to repay faster. Win win.
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