No one looks forward to the prospect of having to declare bankruptcy, but it may happen to individuals or companies big and small. This is not necessarily the end, however; going to bankruptcy court is a means of finding debt relief, and the debtor may come out being in better financial shape. A bankruptcy attorney may be found at a bankruptcy law firm, and these attorneys can do a lot of good for their client. Nothing is being guaranteed here, as a company filing for bankruptcy may find itself completely liquidated to pay its debts. All the same, contacting a law firm to find a bankruptcy lawyer can do some good, and an online search such as “bankruptcy attorney Arlington TX” or “bankruptcy lawyers Los Angeles CA” can give the debtor a chance to survive the bankruptcy proceedings.
When Bankruptcy Happens
Sometimes, chapter 11 bankruptcy is declared, and this is most often used by wealthier individuals and small companies. In fact, close to 90% of chapter 11 bankruptcy filers are small companies, and they tend to have under $10 million in yearly revenue and under $10 million worth of liabilities and assets. Why might a company go broke like this? Sometimes, it is simply poor marketing or other business strategies that lead to going bankrupt, but in other cases, cyber-crime is to blame. Unfortunately, the Internet can be used both for good and for ill, and companies big and small make frequent use of computer server and online Cloud storage for their files and documents. However, something as powerful as the Internet and computers are bound to be exploited by dishonest individuals. Cyber-criminals are able to break through weak cyber-security and steal passwords, bank information and accounts, and more. Many large cyber-crime cases have made the news, and companies may lose millions of dollars and have vital client or customer information stolen. Such crime can greatly harm a larger company, and completely bankrupt a smaller one. In a case such as this, bankruptcy court is needed for debt relief.
When a small company has gone bankrupt, it may file for chapter 11 bankruptcy and go to court with its creditors to seek a solution to the outstanding debt. The debtor company may hire attorneys from nearby law firms to represent it, and also make sure that the proceeding are both fair and productive. The creditors, too, might make use of their own lawyers to represent their own side of the proceedings.
To begin with, if a debtor company has acted transparently and honestly so far, it may be considered “debtor in possession,” or DIP. This means that the debtor company is still in control of its business and remains open, but there are some conditions to this. For one, the debtor company may not take on any new loans without the court’s or the creditors’ permission, neither can it purchase or sell property outside of what it normally does in business operations. The debtor also may not use retained lawyers or hire new ones without permission. A debtor company that violates these terms or commits other dishonest or illegal acts may find its DIP status revoked from that point on in the process in court.
In the meantime, the creditors and debtors will look over the debtor’s finances and assets to figure out a solution. The debtor company will be tasked with creating and presenting a reorganization plan, which is one that restructures and possibly downsizes the company to make debt repayment possible. The debtor company will be given a generous time frame for this, and lawyers may be able to help create this plan before the deadline arrives (though the bankrupt company may request a time extension). When the reorganization plan is ready, the debtor will present it in court, and the creditors may accept it and implement it. In rare cases, the creditors may reject the plan and offer one of their own. Either way, the debtor company will be downsized, reorganized, or partially or even totally liquidated to repay the debts. In some cases, even if the debtor company is entirely liquidated, only a partial repayment of the debts will be possible, and creditors will have to be satisfied with this partial payment.