Business corporations are not the only entities allowed to file a Chapter 11 bankruptcy in Pennsylvania and other states. Other business structures, large and small, may do so. A private school may also file chapter 11 and keep operating under the reorganization plan that it proposes.
A private school in the Erie, Pennsylvania area filed for bankruptcy in Nov. 2012, and is still operating as it strives to follow the Chapter 11 reorganization plan that was just approved by the court. The day school will pay off its tax debts as part of the settlement. Additionally, the school will pay 40 cents on the dollar to its unsecured creditors.
In many bankruptcies, unsecured creditors get only pennies on each dollar of debt. This is usually paid in monthly installments over the life of the plan. In this case, the plan provides for payments over a five-year period. The U.S. Bankruptcy Judge approved the plan of reorganization on Dec. 23, just over two years from the original filing date.
The private country day school serves children in grades kindergarten through 12th grades, and specializes in children with mental health and behavioral issues. The school found that it needed bankruptcy relief when its expenses exceeded revenue. After two years of fundraising and making improvements, it’s beginning to look like the strategy has worked.
The educational institution is better off than when it filed. Its balance sheet is now healthier. The only other alternative to filing would have been to shut its doors.
Furthermore, if the bankruptcy judge in the federal court in western Pennsylvania had not approved the plan, the school would have been forced into Chapter 7 and liquidation of its assets. One strong move occurred in Dec. 2013 when the school sold a piece of property, and used the money to pay tax bills. A Chapter 11 provides a business with more flexible strategies to pay off debt and remain operating than would normally be available.
Source: goerie.com, “Bankruptcy plan OK’d for Community Country Day School“, Ed Palattella, Dec. 26, 2014