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Does your business sector hold sway in a Chapter 11 filing?

Many of our Escondido readers probably know that when a business is struggling financially there are often more questions than answers. In the ever-important task of expanding a customer base and making products more well-known a company could take on more debt than it can handle, forcing the business leaders into uncomfortable decisions in the future. Interestingly enough, however, according to a recent article the type of business in question may have an influence on one of the more pressing decisions that needs to be made: whether or not to file for bankruptcy - and which type of bankruptcy to pursue.

The article noted that retail companies are more likely to eschew Chapter 11 bankruptcy and instead favor a Chapter 7 bankruptcy filing. The report was based on an analysis of 20 retail bankruptcies over the last ten years, in which 55 percent went through the Chapter 7 process. Comparatively speaking, in an overall analysis of 86 business bankruptcies - including retail companies - 17 percent of the companies filed for Chapter 7 bankruptcy. This percentage accounted for 14 of the 86 companies, and of the 14 which chose Chapter 7 11 were retailers.

So, it may seem that retail companies have a harder time seeing a path forward in light of financial struggles. However, the data from this report also seems to validate the usefulness of a business filing for Chapter 11 bankruptcy protection. Anyone familiar with previous posts here knows that the Chapter 11 bankruptcy process is intended to give a company space and breathing room, in order to come to terms with creditors and submit a plan for reorganization of the business structure.

Chapter 11 bankruptcy may not be a cure-all in every circumstance. However, when a company chooses to proceed with a Chapter 11 filing there is at least a good possibility that the company will continue on in existence, and hopefully return to profitability.

Source: Thomson Reuters, "Retailers more likely to liquidate in bankruptcy - report," Nick Brown, April 18, 2013

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