According to a recent article by Scott Blake of Miami Today business bankruptcies have fallen. Business bankruptcy as opposed to a consumer bankruptcy, may allow the business to continue its day to day operations, or like a consumer bankruptcy allow for liquidation of the business’ assets in order to pay off the business’ creditors. According to the Miami Today article, “After a surge in cases during 2010, business bankruptcy filings in South Florida have slowed in recent months…From January through August, 886 businesses filed for bankruptcy protection in the Southern District of Florida, according to a Miami Today review of US Bankruptcy Court statistics. The district is on pace for 1,329 business bankruptcy filings for all of 2011. That projects to be a drop of 22% from a high of 1,709 filings last year.”
As the article notes, some lenders may be more willing to work with struggling businesses. Mr. Blake notes, “The sheer number of troubled loans has meant reassigning career lenders to new roles. They've gone from closing loans to closing companies, in some cases the same ones that they once funded. If a company files for bankruptcy protection, banks or other lenders may have long waits before a case is settled and any payments are received. Currently, the district has more than 33,000 cases pending from filings this year and in previous years, from both businesses and consumers. From March 2010 to March 2011, an onslaught of business and consumer bankruptcy filings hit South Florida. During that 12-month period, bankruptcy filings for the Southern District of Florida rose 26.5%, compared with the prior 12 months. That represented the largest percentage increase in the nation, according to the Administrative Office of US Courts. When businesses seek bankruptcy protection, most end up selling their assets and going out of business rather than reorganizing to stay in business. From January through August, 643 businesses in the district filed for Chapter 7 bankruptcy liquidation, while 205 filed for Chapter 11 bankruptcy reorganization, statistics show.”
The article notes that The Southern District of Florida recorded 24,366 consumer bankruptcy filings from January through August. That number projects to a total of 36,549 filings for all of 2011.
Businesses normally apply for two types of bankruptcy protection, either through a Chapter 7 bankruptcy liquidation or Chapter 11 restructuring plan. A chapter 7 liquidation plan allows for a business to wind down and liquidate its assets in a manner that is structured under the bankruptcy laws. More importantly, Businesses file for bankruptcy protection to take advantage of the automatic stay the Bankruptcy code provides. The automatic stay prevents and halts any collection to continue or commence once the bankruptcy petition has been filed. The drawback a Chapter 7 bankruptcy filing is that the business does not receive a discharge of the debts. The idea behind the code not providing a discharge of the business debts as to their creditors is that the business would be liquidated and stripped of any assets it may have had to satisfy that debt, essentially killing the business and making it impossible to continue functioning. Under a Chapter 11 bankruptcy filing, the business is still allowed to function while allowing debt to be repaid to creditors in a setting similar to an individual Chapter 13 bankruptcy.
Depending on the business owner’s goal either in continuing to function or wind down, bankruptcy may be a viable alternative that allows the business to properly pay down their debt or liquidate their assets to pay down their debt. Bankruptcy may also be an avenue that allows the business to restructure, reorganize, and revamp in order to maintain functioning.
by: Eduardo D. Fons
No comments:
Post a Comment