When people contemplate filing for bankruptcy, "Chapter 11" is almost always considered a last
resort. Its reputation as the bringer of an awful fate has solidified its near mythical status on
how most people think. Bankruptcy experts and other finance professionals have done minimally in
reducing this stigma. They have historically endorsed Chapter 11 as a refuge you seek when there
are simply no other answers. It's no secret that undesirable results await entities - especially
individuals - who file for it. The most obvious ones are loss of assets, loss of control over your
finances, and a reduction on your quality of life. These reasons alone are enough to scare people
and businesses into avoiding Chapter 11 until they are certain that they have no other option.
As a result, many people are unaware that on the right circumstances, Chapter 11 proves to be
beneficial, especially when employed sooner rather than later. The optimum situation for a
business to file for Chapter 11 is when the business still has flexibility and credit that would
normally allow it to put off bankruptcy or avoid it altogether.
When a business is seeking to sell itself or is planning to merge with another business, most
Chapter 11 advocates agree that this is a scenario worthy of Chapter 11 consideration. In most of
these situations, the prospective partner is interested in a particular asset of the first
business. This can range from real or intellectual assets to a thriving customer base. Whatever
the interest is, it is a fact that if the first business has obtained a large amount of debt, the
acquiring entity could be put off by it. If a company suffers through this dilemma, the smartest
strategy it can implement is declaring Chapter 11, even if its financial status is not dire enough
to require it.
The rationale behind this clever business maneuver is to free up cash and cover operating costs
more efficiently by restructuring the company's debt and payment plans; thus, making it more
attractive to the acquiring or partnering entity. This technique helps in asserting the first
business' ability to service its debt while still functioning as a business. The process does not
merit further business scrutiny because the debt was always there and known to the potential
partner. Instead of making the first business look worse, a preemptive Chapter 11 filing improves
its outlook and makes it more attractive.
When dealing with any legal or financial mechanism, especially with negatively-viewed strategies,
one-dimensional thinking should be avoided because most of them have an unexpected silver lining
that could potentially save your business.
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If you can no longer pay your creditors, you may choose to file for bankruptcy. Get a fresh start
- by liquidating assets to pay your debts or by creating a repayment plan. Based in Oakland,
California, Claude D. Ames Law Offices can provide the legal representation that you need for
Chapter 7 and Chapter 11 bankruptcy. Please call (510) 652-1300 or visit his website:
http://www.claudeamesarbmed.com
Posted by J. Randall Frier http://jrandallfrier.com/
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