Many business owners will put off filing for bankruptcy because they believe bankruptcy is the mark of death to their business. What they do not realize is that the decision to wait to file — particularly when their business continues to incur debts — can be the very thing that leads to its dissolution. Choosing to file bankruptcy, on the other hand, might have saved it.
Here are some companies whose bankruptcy claims helped them emerge from their debt and thrive again.
Marvel Entertainment Group: Before Marvel became a blockbuster movie giant, the comic books company filed for bankruptcy. It emerged from bankruptcy and is now worth billions of dollars.
Sbarro: This Italian restaurant chain went through two Chapter 11 bankruptcies (in 2011 and 2014). It restructured its business and rebranded its image to emerge out of bankruptcy successfully.
Delta Air Lines: In 2005, Delta filed for bankruptcy after facing billions of dollars in losses. Multiple shifts in business structure and operations allowed it to emerge from bankruptcy and become one of the nation’s top carriers after merging with Northwest Airlines.
The difference between success and failure
Reorganization through Chapter 11 is not the right choice for every business. Some businesses are so far in debt — or involved in such contentious disputes with their creditors — that liquidating assets through Chapter 7 is the only option. What defines success depends on many factors, including:
- The business’s assets: Companies that have buildings and other tangible assets are typically more successful at reorganizing than those that have largely intangible assets.
- The amount of debt v. capital: If businesses wait too long to file bankruptcy, their debt to capital ratio may be too large to turn a profit after bankruptcy. Bankruptcy does not give businesses capital. Rather, it helps businesses reorganize in order to pay back their debts. There must always be a viable plan to return the business to profit.
- Creditor disputes: In some Chapter 11 bankruptcies, disputes among creditors and other parties with legal claims against the business can be time-consuming and costly, thus jeopardizing the bankruptcy. Many businesses, however, are able to create a reorganization plan that all creditors agree to, and successfully emerge from bankruptcy in months.
A final factor that consistently plays a role in whether a Chapter 11 bankruptcy is successful is the quality of the business’s attorney. If your business is considering Chapter 11, consult a lawyer as soon as possible — ideally, one who has substantial experience helping businesses like yours emerge from debt.