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How To Pay Just $1 Million of $55 Million Owed By Filing Bankruptcy

Posted By admin || 25-May-2011

How To Pay Just $1 Million of $55 Million Owed By Filing Bankruptcy Summit Business Media Holding Co. is another great example of using Chapter 11 bankruptcy protection as a tool to adjust to a rapidly changing industry and rising debts.  The company is exiting bankruptcy after cutting $140 million in debt from its balance sheet and paying unsecured creditors only a fraction of what they were owed.  How did they do it?

Let's take a look:

  1. This publisher recognized its problems immediately and did not engage in unnecessary stalling before filing bankruptcy.  The fact that the company did not delay filing bankruptcy saved it millions and saved its creditors the financial stress of dealing with a company who could not possibly repay its debts.
  2. They engaged in open communication with their creditors before they filed bankruptcy, thus making the bankruptcy process much smoother. Summit used a prepackaged bankruptcy so that all of their creditors could be on the same page once they filed and so that they could avoid lengthy court battles over who was getting paid what.
  3. While Summit has not released any information about how their bankruptcy has changed their business model, many companies use bankruptcy as an opportunity to make changes to the way the do business.  Changes made during bankruptcy such as developing more efficient business models or the movement away from certain products or services which aren't profitable, can actually renew creditors faith in a company.
  4. And finally, Summit was not afraid to cut costs by terminating employees and severing or changing existing contracts while in bankruptcy. Some agreements between the debtor company and employees/vendors simply are no longer profitable once a company begins restructuring their debts and needs to be changed or terminated.

 

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