Weekly Business Magazine

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When A Company Files For Bankruptcy

It is an unfortunate truth that sometimes, a small company or a wealthy individual may have to start filing for bankruptcy and go to bankruptcy court to seek relief and arbitration. Bankruptcy law exists to help make sure that the proceedings for bankruptcy filing are fair and sensible to all parties involved, and civil rights must be respected during this procedure. A company may declare bankruptcy once the managers realize that they cannot pay off their debts in their current situation, and in this case, bankruptcy filing will begin, and bankruptcy filing can be made easier when a lawyer is brought on board to help make this process fair and effective. What might cause a company to “go under,” as some put it? And what methods can be used during bankruptcy filing to reach the most productive and fair outcome for the debtor and creditors alike? Bankruptcy filing does not have to be the end. Real debt relief can be found within bankruptcy court if everything goes well.

Going Bankrupt

A company with a more modest size and scale of operations may choose to file what is called chapter 11 bankruptcy, and once in a while, a wealthier individual may file for this bankruptcy type as well, but most commonly, it is smaller companies that are doing this. About 90% of all chapter 11 bankruptcy debtors are companies that have under $10 million worth in asset and liabilities, under $10 million in annual revenue, and under 50 employees total. Sometimes, it is poor sales or unwise investments or loans that may cause a company like this to end up bankrupt, but in other cases, bankrupt companies are in fact victims of cyber-crime. Today, most companies make use of computer servers and the Internet to store everything from future plans to financial reports and bank account information, but this can be a double-edged sword at times. Cyber-criminals are known for breaking into secure business networks and stealing valuable information and money alike, and some of the largest cyber-crime attacks have caused millions of dollars in losses to various large brand names. And if a smaller company is targeted by such an attack, it may not be able to recover at all, and bankruptcy filing may be the only option left.

Navigating Bankruptcy

Bankruptcy court begins when the debtor files for bankruptcy and debt relief, and often,a debtor company will hire or use a retained bankruptcy lawyer to help make this process smoother and more fair, and often, the creditor(s) will have their own lawyers as well during the lengthy bankruptcy court case. To begin with, a debtor company may be allowed to have DIP, or “debtor in possession,” status if the debtor acts in good faith and is honest about money and business. This means that the debtor company is allowed to retain control of its industries and remain open for operations, but there are some conditions attached to this. For one thing, the debtor may not, without the court’s or creditors’ permission, take on new debt or make purchases or sales that are not a part of that company’s everyday operations. The company, if it violates the DIP terms or if it behaved dishonestly to begin with, may not find itself DIP.

During the court proceedings, all financial and asset information will be looked over, and the debtor company will be allowed to draft and present what is called a reorganization plan. This is a plan for the debtor company to restructure and often downsize its operations to help free up more money for paying off the debt, and a bankruptcy lawyer can be very helpful for this task. The debtor company may also request a time extension from the court. Then, after a reorganization plan is drafted, the debtor company presents it to the court and creditors, who will either accept it and set it into motion, or in rare cases, they will reject it and create one of their own. Either way, the debtor may be greatly downsized or even dissolved entirely to pay off the debt either in part or in full. In some cases, the creditors will have to be content with just a partial repayment if a full repayment is impossible.

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