Not every business that files for bankruptcy is prepared to close its doors. In fact, many Pennsylvania businesses wish to continue their operations despite their financial hardships. When a business is prepared to put in the work and create a plan that will lead to its profitability, that business may find financial success through Chapter 11 bankruptcy.
Though many bankruptcy proceedings begin when debtors choose to file petitions for bankruptcy protections, readers of this Warrendale bankruptcy law blog may be surprised to know that in Chapter 11 bankruptcy, a creditor can file to initiate the proceedings. In any event, filing for Chapter 11 protections effectively begins an automatic stay and allows a debtor business to rework its organization so that it may become profitable and repay its creditors.
Readers of this Pennsylvania bankruptcy law blog may be interested to know that there are a variety of different forms of bankruptcy protections. Contrary to what some may believe, bankruptcy is not a single process that applies to individuals and businesses alike; depending on the goals of the party filing for bankruptcy, the type of bankruptcy pursued can be very different.
One of the benefits of Chapter 11 for a Pennsylvania business is that the company generally can continue operating during the bankruptcy proceedings. During that time, it can attempt to devise a plan to restructure its debt and reorganize the company's financial and operational activities so as to emerge from the bankruptcy in good working condition. However, there are many factors to consider during the challenging dynamic of a successful reorganization.
When a company is in bankruptcy in Pennsylvania or any other jurisdiction, the debtor company must reveal the existence of all assets, including all real estate owned. The company cannot simply sell real estate or other assets without court approval. In one Chapter 11 case, a developer from Montgomery County allegedly sold a property while it was still in the bankruptcy without pre-approval to do it.
A Chapter 11 bankruptcy is generally a reorganization procedure allowing a business in Pennsylvania or elsewhere to get rid of some of its debt and negotiate restructuring of other debt, thus perhaps allowing the company to keep operating with a modified debt structure. In some instances, particularly those in which a company has planned carefully in advance and has the assistance of experienced bankruptcy counsel, it may file for bankruptcy and continue to operate straight through the process, coming out of the bankruptcy in a stronger economic position than before. Another benefit of a Chapter 11 filing is that a company may continue to operate without interruption of its business affairs and without a shutdown of its retail outlets.
All types of businesses, including in Pennsylvania, have taken advantage of the federal bankruptcy laws to reorganize their affairs and attempt to stay in business with a streamlined new business approach. The legal vehicle for that attempt is a Chapter 11 bankruptcy filing. That chapter of the Bankruptcy Code is known generally as the business reorganization section.
The Bankruptcy Code allows a business in Pennsylvania or elsewhere to file a Chapter 11 bankruptcy. This reorganization provision is generally a plan to restructure the finances and activities of the company and remain in business. Some companies, however, may need Chapter 11 only as a transitional phase where they will continue to operate at least partially, but under a plan that, in the end, will lead to final closing and liquidation.
A Chapter 11 bankruptcy gives a business entity the chance to significantly reorganize its debt structure in an attempt to find a viable way to remain operating. That solution also generally benefits the creditors, who otherwise might get a far lower return in a Chapter 7 liquidation. The procedure and general legal principles are similar from state-to-state, including in Pennsylvania, because the bankruptcy laws are based largely on the federal Bankruptcy Code.