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VERIFY: No, a business that files for bankruptcy does not have to pay every outstanding debt to its creditors

The question comes as GT Real Estate, owned by David Tepper, filed for bankruptcy on Wednesday.

ROCK HILL, S.C. — When the contract between York County and GT Real Estate was finalized almost two years ago, the county was on the hook to give GT Real Estate $21 million to widen a nearby stretch of road.

But that money hasn't been paid back by GT Real Estate, and now the company has filed for bankruptcy.

Our VERIFY team looked into whether GT Real Estate would have to pay that money back now.

THE QUESTION

Does a business that files for bankruptcy have to pay every outstanding debt to its creditors?

THE SOURCES

THE ANSWER

This is false.

No, a business that files for bankruptcy does not have to pay every outstanding debt to its creditors based on the deal they negotiate.

WHAT WE FOUND

First, a quick vocabulary review to keep in mind: A debtor is a company that's filed for bankruptcy, and a creditor is a company or individual owed money.

According to the Bankruptcy Code, debtors have to negotiate with the creditors they owe money.

"The whole idea is to put forth a proposal that is hopefully supported by the creditors, a majority of the creditors, and that proposal is then approved by the bankruptcy court," Cox said. "And that's, that's the deal." 

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These negotiations don't take place in open hearings for the public to watch, said Cox. They are private, and often can stretch on for years.

Cox said the law favors the company filing for bankruptcy and in many cases, creditors don't get paid because the company doesn't have enough money to satisfy all of its outstanding debts.

"Debts have to be written off by the creditors because they're not collectible, and that the debtor winds up and sells assets that are prized assets," Cox said.

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VERIFY is dedicated to helping the public distinguish between true and false information. The VERIFY team, with help from questions submitted by the audience, tracks the spread of stories or claims that need clarification or correction. Have something you want VERIFIED? Text us at 704-329-3600 or visit /verify.

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