Question

Many firms in the United States file for bankruptcy every year, yet they still continue operating. Why would they do this instead of completely shutting down?

Answer 1

Answer:

see below

Explanation:

A firm may either opt to shutdown or declare bankruptcy if its making losses.  A shutdown will involve ceasing operations and disposing of assets to pay creditors. Declaring bankruptcy shields the business from debt obligations or seizing of assets by its creditors.

Many businesses opt to declare bankruptcy because shutting down is costly. Except for properties, other assets are likely to be liquidated at costs below their book value. With the burden of debts shelved for some time, a business has a chance of bouncing back to profitability. A loss-making firm whose price is above the average variable cost should continue operating.