FAQ
What was the largest bankruptcy in history?
Lehman Brothers holds the record with 639 billion in assets when it filed for Chapter 11 on September 15, 2008. The collapse triggered the global financial crisis.
What is Chapter 11 bankruptcy?
Chapter 11 is a US bankruptcy process that allows companies to restructure their debts while continuing to operate. The company proposes a plan to pay creditors over time. Most large corporate bankruptcies are filed under Chapter 11.
What is a sovereign default?
A sovereign default occurs when a national government fails to repay its debt. Argentina, Greece, Russia, and Venezuela have all defaulted. Sovereign defaults are particularly complex because countries cannot be liquidated like companies.
What is too big to fail?
Too big to fail describes institutions whose collapse would cause systemic economic damage. The term emerged during the 1984 Continental Illinois bailout. Governments rescue these institutions to prevent contagion, creating moral hazard.
What is a Ponzi scheme?
A Ponzi scheme uses new investor money to pay existing investors, creating the illusion of returns. Bernie Madoff ran the largest Ponzi scheme at 65 billion. The scheme collapses when new investments fall below payouts.
How do bankruptcy recoveries work?
In bankruptcy, assets are distributed to creditors by priority. Secured creditors are paid first, then unsecured creditors, then shareholders. Recovery rates vary widely. Lehman creditors eventually received 65 cents on the dollar. Enron creditors received about 50 cents.