Chapter 11 bankruptcy has become almost a like a "miracle cure" for companies around the country. At the onset of the recession and foreclosure crisis, many companies desperately sought the protection of Chapter 11 bankruptcy, went through the bankruptcy process and emerged more stable and more profitable. But how is it that bankruptcy can help companies turn the proverbial corner financially? Let's take a look:
- Like personal bankruptcy, Chapter 11 bankruptcy puts a stop to all creditor collections actions. Many companies who file Chapter 11 bankruptcy do so with only a few months cash reserve left to operate their business. Many would go completely broke without bankruptcy because if given the opportunity their creditors would devour the company's last few pennies. It is Chapter 11 bankruptcy that allows the company to hold on to their cash and begin rebuilding their company's financial health.
- Chapter 11 bankruptcy allows the debtor corporation to negotiate with creditors and significantly slash their debt obligations. Many good companies have overextended themselves during the boom. Maybe they took out loans for expansion only to be hit with a recession and reduced consumer spending. Bankruptcy allows them to compensate for this misstep by reducing their debt load sometimes as much as 50 percent or more.
- Most importantly, Chapter 11 bankruptcy allows the debtor company to continue operating their business. If it was not for bankruptcy, many companies would have liquidated their assets and gone completely out of business. Many ordinary Americans would have lost their jobs and the economy would have been negatively impacted. But bankruptcy gives companies another chance and by extension saves the jobs and futures of millions of Americans.