Bankruptcy Lawyer Bryan W. Stone answers the question: “What is Chapter 11 Bankruptcy?”
No one thinks bankruptcy is ideal, whether we’re talking on the personal or corporate level. In the case of a commercial bankruptcy, many people wonder what is the best way to go, either Chapter 7 or Chapter 11. Though neither represents the best possible outcome, filing for bankruptcy doesn’t have to be a disaster either and it’s worth weighing your options about which path forward offers the most benefits.
A group of researchers from Northwestern University considered this same question, though they took a wider view of which of the two bankruptcy options is better for society as a whole. In a Chapter 7 case, companies are forced to liquidate, selling their assets in an auction to raise money for creditors. In a Chapter 11 case, companies get the chance to organize and negotiate with creditors. Though differences between the two paths seem clear, no one has ever really studied which, in the long run, is more beneficial. Until now that is.
According to the data from the researchers, the best bankruptcy depends on the particular economic climate at the time. Generally though, Chapter 11 bankruptcies tend to harm the economy less than Chapter 7 bankruptcies. The reason is that when a company is put into a Chapter 7, there is a greater chance that its real estate assets will sit vacant and that fewer workers will be employed. In Chapter 11 bankruptcies, companies have more time to formulate a plan and potentially reorganize rather than being forced to sell assets and fire workers immediately. Though Chapter 11 doesn’t mean that all companies succeed (and many do not), it does allow them to operate for longer and allow for an easier transition for both workers and real estate.
Just one example of how Chapter 11 bankruptcies can prove successful is in the news this very week. Hostess Brands, maker of Twinkies and Ding Dongs, announced that it would sell shares to the public. This marks a dramatic turnaround for a company that sought Chapter 11 bankruptcy protection for a second time only four years ago. In the interim years, new management was installed, factories were modernized and debt was restructured. The company also deployed a new sales and distribution strategy aimed at putting its items in front of many more customers.
Though jobs were lost as part of the reorganization, many more jobs were saved that would have been lost had the company simply liquidated. The results have been extraordinary, with Hostess announcing that it racked up $650 million in sales last year. Hostess is an example of exactly what the researchers were referring to, a company that was given a second change and took full advantage of it, a decision that helped its bottom line, its workers, its owners and the economy as a whole.
If you are contemplating bankruptcy in the Charlotte area, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with legally sound advice for your particular situation.
About the Author
Kyle Frost joined Arnold & Smith, PLLC in 2013 where he focuses his practice on all aspects of civil litigation and bankruptcy, including: Chapter 7, Chapter 11, Chapter 13, home loan modifications and landlord-tenant issues.
Born and raised in upstate New York, Mr. Frost attended the University at Albany on a Presidential Scholarship, graduating magna cum laude with a double major in Political Science and Sociology. He went on to attended Wake Forest University School of Law in Winston Salem, North Carolina.
Following college, Mr. Frost spent over a year teaching English in South Korea. He worked in a private school in Seoul developing curriculum, English programs, and educating both children and adults that were interested in learning a new language.
In his spare time, Mr. Frost enjoys homebrewing, fishing, and travelling.
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