Businesses and wealthy individuals in the United States sometimes find themselves unable to pay off their debts in their current financial affairs, and when this happens, bankruptcy may be declared. Some may dread the idea of declaring bankrupt, and may think it means “broke and hopeless.” While bankruptcy is indeed declared when the debtor party is in a poor financial situation, bankruptcy is not entirely negative. In fact, many parties seek debt relief in bankruptcy court, and a bankruptcy attorney may be hired from a bankruptcy law firm to help them. When the debtor goes through court with their creditors, all involved parties may work together to find a productive solution that solves the debt as much as possible. A low cost bankruptcy attorney may be found from a local bankruptcy law firm, and such a bankruptcy attorney may help his or her client formulate productive plans in bankruptcy court and protect them from unfair behavior on the court’s or creditor’s part. A bankruptcy lawyer will know the relevant laws and prevent such unproductive behavior. Why might a company call upon a bankruptcy attorney, and what comes next?
Why Bankruptcy Happens
A number of “chapters” of bankruptcy exist in the United States today, and chapter 7 bankruptcies, for example, may take close to six months to complete and will stay on the debtor’s credit report for 10 years. Meanwhile, chapter 11 bankruptcies are among the most common, and they are often used by smaller companies and sometimes wealthy individuals as well. Most companies who file for chapter 11 bankruptcy have under $10 million in yearly revenue, under $10 million worth in assets and liabilities, and under 50 employees.
What might drive a company to declare bankruptcy, such as a chapter 11 bankruptcy case? Sometimes, bad business practices or misfortune may strike, and a company’s client or consumer base may dry up or the markets shift away from what they are offering. In other cases, however, the debtor company is the victim of robbery via computers. Many companies make vigorous use of computers, data servers, and the Internet for business, and while this is hugely convenient and flexible, there are some risks involved. Cyber-criminals such as hackers may break into a secure Cloud storage account or a data server and steal bank account information and passwords, or even steal client or customer information as well. This often results in a large sum of money being stolen, and this may greatly harm larger companies and drive smaller ones to bankruptcy. Even a successful smaller company may find itself bankrupt after such a crime. IT professionals can be hired to bolster Internet and computer safety to minimize the chances of this, but it is known to happen.
For whatever reason, a debtor company may have its creditors take it to bankruptcy court. It is more common, however, for the debtor company to declare bankruptcy first and go to court to find debt relief, and many debtor companies may be proactive this way. Going to such court also involves hiring bankruptcy attorneys from local, specialized law firms to help represent their interests during the court case. Such lawyers will help prevent abuses or other unfair practices against their clients.
If the debtor company has behaved honestly and fairly so far, they may be considered DIP, or “debtor in possession.” This means that the debtor is free to continue operating as normal, but there are some conditions involved. The debtor may not take on new loans, for example, nor may it buy or sell property or assets outside of what it must for actual business practices. A business which violates these terms or otherwise acts dishonestly or illegally may find its DIP status revoked.
During court, the debtor will be asked to formulate a reorganization plan, one that restructures the debtor (and possibly downsize it) to make debt repayment easier. The debtor may ask for and receive a time extension if desired. Later, the debtor will present the plan, and if accepted by the court and creditors, it will be put into motion. The plan may downsize or partially liquidate the debtor, or even totally liquidate it to help pay off that debt partly or in full to whatever extent is possible.