Are Chapter 11 Bankruptcy Protections the “Secret Weapon” of Surviving In Business?

Posted on September 21, 2015 at 12:00pm by

In the last several weeks, we have written about businesses using Chapter 11 bankruptcy to survive financial doom. Unexpected and unfortunate circumstances can push companies into positions where paying back debtors becomes an unlikely prospect. Fortunately, there is a way out for companies facing such situations.

A recent story from NPR discusses how Chapter 11 bankruptcy is the “secret weapon” of the U.S. economy. Although Chapter 11 bankruptcy is not exactly a secret or a weapon, its benefits might be largely unknown to business owners.

The informative article tells the story of Queen City Appliances, a Charlotte, North Carolina company that suffered hard times during the 2009 Great Recession. Over the decades, the company went from 8 to 17 stores and business was plentiful. When the Great Recession hit, business became slow and it was difficult for the owner to pay back creditors. After receiving constant phone calls from lenders demanding payments, the owner decided to file for Chapter 11 bankruptcy.

How can Chapter 11 Bankruptcy Protections Help Businesses?

The article then goes on to describe how the company survived by filing for Chapter 11 bankruptcy. The owner of the company compared Chapter 11 bankruptcy to “hitting a pause button“ because it froze payments to lenders and gave him time to assess how he was going to keep his business afloat. In bankruptcy, this concept is called an “automatic stay”. According to the owner of Queen City Appliances, he had a 133-page list of lenders.

Filing for Chapter 11 bankruptcy also allowed him to keep his business open while refinancing debts to make them more affordable. Business owners can be allowed to retain control of operations through a concept known as “debtor-in-possession”.

After filing for Chapter 11 bankruptcy, the business went from 17 stores to only 4. However, the business survived and gave the owner an opportunity to pay down his debts. Instead of liquidating the assets of his business, the owner was able to refinance his debts and keep the doors open.

Taken together, the article shows how Chapter 11 bankruptcy offers companies a second chance and an opportunity to survive financial ruin.

The Sader Law FirmKansas City Bankruptcy Attorneys



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