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Chapter 11 gives business the chance to re-structure old debt

On Behalf of | Jul 28, 2015 | Firm News

When a business in Pennsylvania or elsewhere files a Chapter 11 bankruptcy reorganization case, there are several key benefits that it may legally pursue in its own behalf. Importantly, the business does not have to close its doors and may continue operating during the bankruptcy. In some cases, it may even be successful in raising new financing to replenish the company’s financial coffers during the Chapter 11 proceeding.

While the business remains operating, it keeps its good will, customer base and recognized brand. At the same time, it may succeed in restructuring existing debt by getting the Bankruptcy Court to approve reduced interest rates on some loans that are excessively more than the going rate. Chapter 11 also provides an opportunity to “strip” a loan’s principal balance down to the market value of the property.

That last benefit gives the debtor the opportunity to get back on track with real property that has become worth far less than the amount owed on it. The debt is essentially reduced to reflect the amount that could be obtained if the property were sold on the open market. In these and other ways, the company may obtain valuable assistance in streamlining its debt and improving its operational base. 

In another state recently, there was an example of how this process can benefit the small or medium-size business owner. A business known as Treetops Resort in a neighboring state announced that it was emerging from a Chapter 11 in much better financial shape than when it filed back in Nov. 2014. The golf and ski resort indicated that it had gotten rid of old debt and positioned itself for new operational improvements.

The process of reorganization is conducted pursuant to a framework of federal laws. These are contained in the legislative compilation known as the Bankruptcy Code. The framework of federal laws that provides for Chapter 11 relief is applicable in Pennsylvania and in all other states. 

Source:, “Treetops Resort emerges from bankruptcy“, July 28, 2015