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Bankruptcy offers the chance to restructure business debt

In Pennsylvania and elsewhere, bankruptcy is an option that consumers and businesses with overwhelming debt may find to be the key to their financial recovery. It is not a minimal remedy nor even an attempt to regulate an overactive or neglected budget. Bankruptcy is for businesses and consumers who have encountered severe financial setbacks and are now struggling to find a solution to a crisis situation.

With respect to business entities, the bankruptcy filing most used is Chapter 11. This remedy gives a struggling business several options and strategies to reorganize and restructure its debt load. The benefit of Chapter 11 is that it doesn't have to end in closing the business and auctioning off the assets.

The Chapter 11 allows a business generally to keep operating while reorganizing structures are put together to see what solutions can be adopted. The successful business in a Chapter 11 will come out of the process still operating and with renewed financial vigor. In most cases, some restructuring of the business debt will have taken place during the bankruptcy process. In some cases, the principle amount of a loan or a funding apparatus can be reduced.

In some cases, there may be a reduction of the interest rate going forward. Another way that the restructuring takes place is for new investors to settle some or all of the existing debt for reduced amounts. This will often put the new investor in an equity position within the business or at least with protection from freed up capital that will assure the success of the new funding vehicle.

Businesses in Pennsylvania that are encountering serious debt problems, or for that matter consumers who need debt relief, can start the process by consulting with an experienced bankruptcy attorney. That process involves going over the actual debts and financial details of the business or the consumer's situation. In that way, those struggling with overwhelming debt problems can find out precisely what they can do to get relief and what specific strategies may be available.

Source: lifehacker.com, "What Really Happens When You File for Bankruptcy?", Kristin Wong, June 14, 2016

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