When a company files for Chapter 11 bankruptcy, their bankruptcy attorney usually files what is called 1st day motions. First day motions are requests by the debtor-company to pay certain creditors so that the company can continue to operate.
What Are Some Examples of First Day Motions In Chapter 11 Bankruptcy?
Below are some examples of first day motions which may help the debtor-company survive the bankruptcy process:
- A motion to continue to pay employee salaries. While every company entering bankruptcy lays off some of its employees, most companies cannot survive if they fall under a certain amount of core employees necessary for the company to function. By requesting that the bankruptcy court allow them to pay employees first even before their other creditors are paid, the debtor-company increases it chances of avoiding a panic and subsequent exodus of quality workers from its enterprise.
- A motion to pay certain key suppliers first during Chapter 11 bankruptcy. A good example of this type of 1st day motion in bankruptcy is Blockbuster's request to continue paying movie companies for the videos they rent and sell to customers. Without the videos, Blockbuster cannot continue operating their business even in bankruptcy. This is why a bankruptcy judge would most likely approve this motion.
- A motion to pay healthcare providers first during the Chapter 11 bankruptcy. This correlates to retaining employees during bankruptcy. If employees believe that their benefits will be cut during a bankruptcy they may decide to flee, leaving the bankrupt company unstable and less able to survive the Chapter 11 bankruptcy process.
Depending on the circumstances of the Chapter 11 bankruptcy case most 1st day motions are approved by the bankruptcy court, making it easier for the company to operate. One of the reasons that the motions are called 1st day is because they are requested the 1st day the bankruptcy is filed and are usually approved immediately so that there is no gap in payment to these critical creditors.
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