With so many companies in bankruptcy in recent years, it leads many to question what the future of many similar companies hold. The truth is that no two business bankruptcy cases are alike, and no two cases of similar companies will end up with the same fate. So what are some of the differences in how business bankruptcies are handled?
There are two forms of business bankruptcy, Chapter 7 and Chapter 11. Filing for Chapter 7 in business is a form of liquidation bankruptcy, in which assets are divided among creditors to satisfy debts. In many cases, a business Chapter 7 case means the end of operations. Recent examples include the Hostess bankruptcy case, which sold assets and rights to certain products in their liquidation proceedings. While some of their products may still be available to consumers, the manufacturing and marketing rights have been sold to another bakery company.
In Chapter 11, businesses work to reorganize their debts and remain in operation. This can be achieved in many ways such as making partial payments, selling off some assets, obtaining new investors or loans to support debt obligation payments, reducing operating costs and offering creditors at first priority of future profitability. In the American Airlines Chapter 11 case, labor costs have been reduced, along with lowering pension cost obligations of employees, and increasing profitability through airfare increases. Other notable Chapter 11 cases, like major sports teams, tend to involve selling of some assets, such as partial ownership rights to other investors.