Tough economic times have taken a toll on many families and businesses alike. When debts become unbearable and operations become strained, many businesses big and small have had to make some important decisions. For many the choice to file for business bankruptcy has been the right one.
Restructure and Resolve
There are two options for resolving business debt obligations in bankruptcy. A Chapter 7 filing is a liquidation procedure, essentially selling off any remaining business assets to satisfies debts. Unfortunately, this often means the end of business operations. While many businesses will suffer this fate, there is another option. A Chapter 11 filing can offer a restructuring plan that sets the business on course for continuing operations while debts are resolved. In this type of filing, the business remains in operation while negotiating any number of changes to the financial structure to work towards debt resolution.
Similar to a personal Chapter 13 case, filing for Chapter 11 typically involves a repayment plan spread out over the course of time; making it possible for the business to maintain operations and regain profitability as debts are being satisfied. In many Chapter 11 cases, existing debts will be modified and obligations will be met through any number of ways. Some cases involve selling assets, offering up equity shares, and others bring in additional investors that obtain a stake in the company's profits. The business model or product may also be changed or downsized to accommodate a more streamlined version of operations.
A business bankruptcy can involve many more complicated aspects than a personal case. Large corporations with intimate shareholding systems or companies with multiple owners have a lot to consider when choosing the Chapter 11 path. When more than one person is involved in the decision making process of the company it can be difficult to successfully negotiate a restructuring plan that is satisfactory to all parties of interest. Further, business debt creditors are often backed by strong legal representation that can impede negotiation efforts.
Therefore, businesses of any size should seek guidance from a bankruptcy attorney when looking to resolve the financial hardship of their business. In today's high profile Chapter 11 cases, such as the American Airlines merger or the Kodak patenting debacle, having experienced representation could have been the very factor that allowed both of these once industry topping companies to successfully exit bankruptcy protection and move forward.