Mortgage Case: Filing Chapter 11

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I understand your concern for the financial statements. Thank you for the questions you asked concerning the effect on your financial statements if you lost the lawsuit. You have various questions regarding the mortgage, Chapter 11, patent impairment, and contingencies in the event Fabrikam lose the lawsuit. Filing Chapter 11 does not forgive debts. Rather, it only reorganizes debts and formats them for you to repay over time. Reorganization bankruptcies are for businesses, not individuals. Chapter 11 limits the debt to that of the business. In the case of your mortgage, filing Chapter 11 will allow you to re-write your mortgage. Real estate investors will work to rewrite your mortgage by reducing the principle balance to the value of the property. In addition to the reduction of principle owed, filing Chapter 11 will also allow you to extend the term of repayment and reduce the interest rate. Filing Chapter 11 does not mean that the business will no longer operate. Rather, when done successfully, it can help your business…show more content…
According to Schroeder, Clark, & Cathey (2011), a contingency is a future event that could have an impact on the business. The “concern has been that disclosures under the current standard do not provide enough information to allow those who use the financial statements, such as investors to adequately assess the likelihood, timing and amount of liability related to the loss contingency” (Holme, C.). When a loss is possible, we can report the contingency financial statements—the statements do not reflect

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