Chapter 11 bankruptcy is a state in which companies might find themselves if they have had years of unprofitable operations. Although it is a popular option for companies in need, it might not be the best solution for a struggling business.
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Chapter 11 bankruptcy is a state in which companies might find themselves if they have had years of unprofitable operations. Although it is a popular option for companies in need, it might not be the best solution for a struggling business. Below we'll take a look at some of the disadvantages of Chapter 11, as well as an alternative to it.
Problems with Chapter 11 Bankruptcy
Oftentimes, Chapter 11 bankruptcy can be more trouble than it's worth to the company in need, for a number of reasons that we'll note. First off, let's look into what bankruptcy is all about. The US Trustee branch of the Justice Department will usually assign one or more committees that help the company restructure its infrastructure in the hopes that it can make more money from operations. These committees draft a plan that will try to serve both the shareholders and the creditors of the company.
Before this plan can go into effect, it must first be approved by a number of parties: the creditors, the shareholders, and the note holders. This must also be confirmed by the court. As one might expect, it can take a significant amount of time for the plan to be put in action, because of all the filing, paperwork, and authorizations required. A third-party debt restructuring firm might be better.
Because it requires none of the filing formality of Chapter 11 bankruptcy, debt restructuring programs from third-party companies are desirable for some. By negotiating with creditors, these companies can help business lower their monthly repayments to a reasonable level. Consistent repayments also increase one's credit rating.