Suzzanne Uhland has addressed the topic of corporate bankruptcy from all sorts of angles. Today, many companies file for bankruptcy in hopes of getting out of tough situations—which accounts for the myriad of businesses and entrepreneurs that decide to file for Chapter 11 whenever they feel their current status is getting tougher. Many people still wonder how can companies and entrepreneurs remain wealthy after having been bankrupt, in some cases, more than once. Moreover, another question commonly arises: how are they worth even more now after bankruptcy? In hopes of providing a plausible explanation, here are several aspects that can be used as an explanation for such unorthodox thing:
First, it is not rare to see companies and entrepreneurs filing for bankruptcy more than one. In fact, many of them have actually filed for bankruptcy up to four times. Companies, limited partnerships and LLCs in which entrepreneurs or people have ownership often file for Chapter 11 as a mere business tool. Why? Because of bankruptcy, when carried out properly, allows them to restructure debt, liberate capital and improve the overall status of their businesses. They can cut debt, for they are not dealing with their personal finances. In fact, it is quite common to see companies and entrepreneurs in America using the laws of the United States to their own advantage and to other individual’s advantage just as many other have in the past. However, one thing remains certain: to those unfamiliar with such spheres, the instances of corporate bankruptcy are no less than daunting and staggering. Be that as it may, Chapter 11 is how companies manage to reshape debt while restructuring their failing business. It does not, however, indicate that those who deem this necessary have been doing anything wrong in terms of management.
Additionally, bankruptcy poses a much better alternative: the consequences and possible repercussions filing for bankruptcy might have for creditors v.s. Liquidation: a company may file for Chapter 11 multiple times; however, if it is operating and it has got cash flow and income, although it may not be able to pay back every cent on each dollar, the creditors are much better off in the long run than leaning towards an alternative. Another aspect that has undoubtedly helped those whose name is globally recognized is their persona. The name and image definitely help companies and entrepreneurs survive bankruptcy periods and come out on top. They are able to demand a high percentage of the value of their brands to bring back their businesses to an operational status. Name and image are leverage. The cost of renaming, changing ownership, etc., would be definitely much higher.
Another benefit is that businesses and companies, in general, continue to be operational after each bankruptcy they go through. In fact, afterwards, many end up being much stronger financially speaking. Companies can sometimes stop the Chapter 11 court from selling the assets they would need to continue operational, and, as mentioned in previous articles, the same court does not assign a trustee to the whole process. However, one thing is certain: this is a highly complex process which demands a plethora of patience and time. It may even take years to resolve and repay debts—which is why some deem Chapter 11 as a highly expensive procedure.
In spite of these disadvantages, in many cases, filing for Chapter 11, as mentioned above, is the right decision and course of action. Aside from the aforementioned advantages, filing for bankruptcy will trigger what is commonly referred to as automatic stay, thusly preventing all creditors from taking further actions to collect their money and the debts aside from regaining ownership of other assets. Besides, companies may also be able to get rid or discharge their obligations to repay any dischargeable obligation or debt. By filing for Chapter 11, companies get to use the traditional bankruptcy exemptions: the vast majority of debtors actually manage to go throughout the whole process without losing property or ownership. And, last but not least, many debtors have actually improved their credit rating after filing for Chapter 11—it is necessary to mention, nonetheless, that bankruptcy remains on records for up to ten years.
So, is filing for bankruptcy a nagging decision? Sure it can be. However, there are many advantages to it as depicted in the previous paragraphs. Companies and entrepreneurs, especially those unfamiliar with the process, should resort to a bankruptcy lawyer in hopes of actually getting the most of the situation so that they can restructure their businesses and come back to a strengthened position. When carried out properly, the aftermath allows businesses to regain their position in the market aside from increasing their cache; when carried out wrongly, the aftermath can be unquestionably terrible. Whatever the case may be, bankruptcy is a solution that depends highly on the type of debts a company may have and how much property it needs to protect. Always discuss these aspects with a bankruptcy attorney prior to recklessly rushing into conclusions.
* Featured Image courtesy of Matthias Zomer at Pexels.com