Bankruptcy laws hold strict requirements for filing for personal bankruptcy more than once. Often times, a debtor must wait anywhere from 4 to 8 years to file again depending on their previous filing. Despite even more strict exit criteria for business bankruptcy filings, there has been an increase in the number of businesses seeking bankruptcy for the second or more time in recent months.
Chapter 11 Times Two, Or More
The number of companies making a second or more trip through bankruptcy had jumped dramatically the first two months of this year. Two of the more notable second time filings include the snack maker Hostess Brands and Buffets family-style restaurant. Sometimes called “Chapter 22” filings, businesses who enter Chapter 11 again face some challenges ahead.
One of the biggest issues that a company faces when filing for bankruptcy a second or more time is the loss of market share or decrease in stock value. In such cases, the chances their Chapter 11 case will be converted into a business Chapter 7 are much higher. This generally happens when the court deems the chances of a successful exit to be slim. Businesses who seek debt reorganization may find themselves in the middle of a liquidation case if the court feels it is in the best interest of the creditors. By law, bankruptcy judges must ensure a company has a reasonable potential for debt reorganization before it is allowed to exit. The costs of repeat filings goes far beyond those of the court and can significantly impact the likelihood of the case being successful, as well as signaling a larger problem within the business’ financial operations.