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What happens after a company files for Chapter 11?

In today's business and e-commerce world, U.S. companies must not only tackle ways to stand out among their U.S. competitors, but also among strong competition from companies across the globe. Fluctuating financial markets and shifting priorities make it challenging for today's businesses to predict the future needs and wants of clients and customers as well as to plan where to invest their time, focus and capital.

Consequently, companies that miss the mark often suffer deep financial losses that may be difficult to overcome. In cases where a business' debts become overwhelming and a company's ability to sustain operations is in jeopardy, it's critical to take control and devise a strategy to restructure debts, trim and streamline business operations and ultimately overcome financial challenges.

Chapter 11 bankruptcy provides a struggling business the opportunity to stall all creditor payments and legal proceedings. Additionally, a company's bondholders and investors "stop receiving dividends and principal payments,” which combine to provide a company the time and additional equity to continue normal operations while devising a plan to financially reorganize.

Upon filing for Chapter 11, under U.S. bankruptcy rules, a committee is formed to represent the best "interests of creditors and stockholders." A business' officers and committee members share the common goals of helping a company trim and eliminate debts and reorganize to become profitable.

For a business that files for Chapter 11 protection, the process can be lengthy and, to successfully achieve future profitability, requires the successful navigation of both complex legal and financial processes. It's wise, therefore, to consult and partner with a legal team that is well-versed in corporate bankruptcy and debt restructuring matters.

Source: Investopedia, "An Overview Of Corporate Bankruptcy," Nov. 5, 2015

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