Many people equate business bankruptcy with going out of business. They assume that a company that has to declare bankruptcy has simply run out of money, can’t pay its debts and is going to close its doors.
This is very far from the truth. Though it can grow very complicated, Chapter 11 bankruptcy allows for debt to be reorganized. A business can stay open the whole time that this is happening and never faces the threat of closure. Debts and other financial obligations are just restructured in a way that allows the company to continue paying back what is owed and doing business.
After all, that’s what the lenders want the most, and it is what the business owners want. No one’s goal is to go out of business. Bankruptcy isn’t just some way to avoid paying back expenses. It can be used to rectify past financial mistakes and set things up for future success. This can help the business continue to earn and even grow, making that debt more affordable. If the company does well, the lenders get their money back and everyone wins. Chapter 11 makes this possible when it would not be otherwise.
So, why the confusion about bankruptcy? The issue is just that many consumers think only of Chapter 7 bankruptcy, which is when assets are liquidated. It’s often used by individuals. People assume that every case looks like this, when the truth is that there are many different types of bankruptcy filings, with many different goals.
If you are a business owner who is considering bankruptcy, be sure you know exactly what options you have.