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The real goal of Chapter 11: Profitability

Generally speaking, people think of bankruptcy as a way to get out of debt or to avoid paying back money that is owed. If word comes out that a business is declaring bankruptcy, people will assume that that means the business is going under.

With Chapter 7 bankruptcy, that may be true, as Chapter 7 is liquidation bankruptcy. Assets are sold to pay off some of the money that is owed and then the other debt is typically forgiven. A business with no assets, though, is on its way out.

However, this is not always how things play out. The problem is that people often think all bankruptcy works like Chapter 7, when other types of filings—like Chapter 11—are quite different.

With Chapter 11, the true goal for the business is profitability. Rather than going under, the business is just trying to restructure. The owner is trying to get the debt in order and set up an affordable payment plan. When that's done, the business can then slowly pay down that debt while making money.

In the long run, the goal is for the business to survive and be stronger than it was before. When debt is managed properly and matched to quarterly income levels, the company can slowly and surely climb out of debt and become profitable for the future. While this can take years to accomplish, it's a way for a business to put financial mistakes in the past and have more success going forward.

As you can see, it's wise to know all of your bankruptcy options, and you never want to make assumptions about the process or what it can do for you in New York.

Source: FIndLaw, "Chapter 11 Bankruptcy," accessed April 29, 2016

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