<p>Taking FTX as an example, I know they took depositors' funds, send them to SBF's other company Alameda Research which then made risky crypto investments and failed.</p>
<p>This made FTX hold less assets than the funds they owed their depositors, so FTX filed for bankruptcy.</p>
<p>From what I know about bankruptcy, a person or firm with negative net worth (<span class="math-container">$assets &lt; liabilities$</span>) can file for it, which makes (after having their case reviewed) them turn in whatever cash they end up with (after having all their assets liquidated by a trustee) and distribute it among their creditors (which would be less than what all creditors were owed, they end up losing).</p>
<p>As a result, the bankrupt entity would now have <span class="math-container">$0$</span> net worth, having neither assets nor liablities, which is better than having a negative net worth.</p>
<p>The FTX situation made me think: couldn't have SBF kept investing that cash through Alameda, not paying their debts until it eventually worked out and <span class="math-container">$assets &gt; liabilities $</span> <span class="math-container">$+$</span> a decent margin, then pay their debts and keep operating with a few billions as a succesful company?</p>
<p>In this hypothetical scenario, SBF wouldn't have lost either of his companies FTX and Alameda, both of these would've been solvent and SBF would've still been a billionaire, rather than filing for FTX and Alameda's bankruptcies back in November and be left with a net worth of <span class="math-container">$0$</span> or whatever &quot;pocket cash&quot; he had left in his personal bank account.</p>
<p>That made me think about this: Why would a company declare bankruptcy (now) when it can always do so later and hope for a comeback on its finances?</p>
<p>It seems to me that worst case scenario it reaches the point where it already liquidated all of its assets, then lost all that &quot;physical&quot; cash and nobody wanted to lend more cash to it, and then be forced to file for bankruptcy and have it dissolved debtless anyway, so wouldn't there be nothing to be lost by postponing bankruptcy filings for a second chance?</p>

CC BY-SA 4.0
2023-02-17T15:00:33.070Z
I think that this  question is intertwined with legal aspects, so the answer can vary depending on the country. In my country, where, as also  in other countries, there is a law of Roman origin, in some circumstancies you  are obliged to file for bankruptcy, otherwise it is a penal crime. Morover, your creditors can prosecute you and obtain the enforcement of the payment of the debt, so you lose soon your money and pay the creditors probably more than in the case of bankrupcy. Anyway, interesting question, +1.
BakerStreet
CC BY-SA 4.0
2023-02-17T19:48:12.040Z
@BakerStreet Interesting point, +1 on the comment. So that would be an issue about if the creditors want to safely take the reduced repayment from the bankruptcy proceeding or take a gamble on the company being solvent again and be paid in full, with the risk of the company failing harder and potentially get nothing back.
Nicolas Torres
CC BY-SA 4.0
2023-02-17T21:33:10.573Z
Thank you. It could be, but I think that these are very complicated law issue, I'm not an expert of law. I think that when therev is a bankruptcy procedure, the creditors are obliged to accept the payments decided by the judge, there is an order of creditors  established by law, some creditors are payed first and others later, it can occur that some creditors are not payed at all,  they are subordinated creditors.
BakerStreet
CC BY-SA 4.0
2023-02-17T21:38:35.103Z
There was, some years ago, a famous financial scandal in Italy, the bankruptcy of Bank of Etruria, which was a tragedy for many people, not rich people, who were deceived by the bank.  The bank  sold them subordinate bonds, without saying that they were subordinate, so that, when the bank declared bankruptcy, these people weren't paid and lost all their savings. But I don't no very much about  these difficult legal and financial issues.
BakerStreet
CC BY-SA 4.0
2023-02-18T13:43:53.123Z
Ultimately, if I were a firm that must decide if to file for bankruptcy, I would consult a lawyer, not an economist, at lest to avoid  going to prison.
BakerStreet
<finance><debt><corporate-finance>
Why would a company file for bankruptcy now when it can always do so later?
Nicolas Torres
# Why would a company file for bankruptcy now when it can always do so later?

(Asked by: username_0 on 2023-02-17)

Taking FTX as an example, I know they took depositors' funds, send them to SBF's other company Alameda Research which then made risky crypto investments and failed.

This made FTX hold less assets than the funds they owed their depositors, so FTX filed for bankruptcy.

From what I know about bankruptcy, a person or firm with negative net worth ($assets < liabilities$) can file for it, which makes (after having their case reviewed) them turn in whatever cash they end up with (after having all their assets liquidated by a trustee) and distribute it among their creditors (which would be less than what all creditors were owed, they end up losing).

As a result, the bankrupt entity would now have $0$ net worth, having neither assets nor liablities, which is better than having a negative net worth.

The FTX situation made me think: couldn't have SBF kept investing that cash through Alameda, not paying their debts until it eventually worked out and $assets > liabilities $ $+$ a decent margin, then pay their debts and keep operating with a few billions as a succesful company?

In this hypothetical scenario, SBF wouldn't have lost either of his companies FTX and Alameda, both of these would've been solvent and SBF would've still been a billionaire, rather than filing for FTX and Alameda's bankruptcies back in November and be left with a net worth of $0$ or whatever "pocket cash" he had left in his personal bank account.

That made me think about this: Why would a company declare bankruptcy (now) when it can always do so later and hope for a comeback on its finances?

It seems to me that worst case scenario it reaches the point where it already liquidated all of its assets, then lost all that "physical" cash and nobody wanted to lend more cash to it, and then be forced to file for bankruptcy and have it dissolved debtless anyway, so wouldn't there be nothing to be lost by postponing bankruptcy filings for a second chance?

**Tags:** finance, debt, corporate-finance
> **Comments:**
> **username_1**: I think that this  question is intertwined with legal aspects, so the answer can vary depending on the country. In my country, where, as also  in other countries, there is a law of Roman origin, in some circumstancies you  are obliged to file for bankruptcy, otherwise it is a penal crime. Morover, your creditors can prosecute you and obtain the enforcement of the payment of the debt, so you lose soon your money and pay the creditors probably more than in the case of bankrupcy. Anyway, interesting question, +1.  
> **username_0**: @BakerStreet Interesting point, +1 on the comment. So that would be an issue about if the creditors want to safely take the reduced repayment from the bankruptcy proceeding or take a gamble on the company being solvent again and be paid in full, with the risk of the company failing harder and potentially get nothing back.  
> **username_1**: Thank you. It could be, but I think that these are very complicated law issue, I'm not an expert of law. I think that when therev is a bankruptcy procedure, the creditors are obliged to accept the payments decided by the judge, there is an order of creditors  established by law, some creditors are payed first and others later, it can occur that some creditors are not payed at all,  they are subordinated creditors.  
> **username_1**: There was, some years ago, a famous financial scandal in Italy, the bankruptcy of Bank of Etruria, which was a tragedy for many people, not rich people, who were deceived by the bank.  The bank  sold them subordinate bonds, without saying that they were subordinate, so that, when the bank declared bankruptcy, these people weren't paid and lost all their savings. But I don't no very much about  these difficult legal and financial issues.  
> **username_1**: Ultimately, if I were a firm that must decide if to file for bankruptcy, I would consult a lawyer, not an economist, at lest to avoid  going to prison.  

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## 0 answers

