How Your Company Can Use Out-Of-Court Restructuring And Bankruptcy To Alleviate Financial Distress

Restructuring your company through Chapter 11 is often the only solution for a company that is experiencing financial distress. However, many companies will attempt an out-of-court restructuring prior to eventually filing Chapter 11 bankruptcy. If you are not sure which option is the best for you, it's a good idea to consult with a bankruptcy lawyer.

The Challenges of an Out-Of-Court Restructuring

You might wish to avoid going to court because it is more expensive than restructuring out-of-court. However, to be able to restructure out of court, you will typically need all of the creditors to agree to the restructuring. This can be very difficult especially when you are seeking the modification of:

  • Interest rates
  • Amortization
  • Amounts
  • Maturity dates

If the creditors are not able to agree to any of these terms, your out-of-court restructuring might end up being stalled and you will continue to suffer the consequences of failing to pay your debts or paying debts that are at an excessively high-interest rate. However, if you file for chapter 11 bankruptcy, the creditors will have no choice but to participate.

The Threat of Bankruptcy Can Force a Creditor's Hand

While working with a bankruptcy attorney, you will gather together documents well in advance that will support your bankruptcy claim. This will allow you to be better prepared to file for bankruptcy and will also allow you to demonstrate to your creditors that you are serious about filing for bankruptcy. This will increase the odds that they will be willing to agree to an out-of-court restructuring.

An Out-of-Court Restructuring Might Suddenly Fall Through

You might believe that you are about to successfully negotiate an out-of-court restructuring only for it to suddenly fall through. If this occurs, you may then be forced to file for chapter 11 bankruptcy. However, if you have been working with a bankruptcy lawyer and have gathered all the necessary paperwork, you will be better prepared to take the next step toward filing for bankruptcy.

The debtors will often face consequences as a result of failing to agree to your out-of-court restructuring. For example, they will be forced to pay legal fees and will also be forced to abide by the ruling of the court. However, regardless of which option you choose, you have rights and you will want to consult with a lawyer to determine what your best legal options are before you move forward with your bankruptcy.

For more information on bankruptcy, contact a firm like DiFatta Law Offices LLC.