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Developer benefits from "breathing spell" in Chapter 11

For Wayne County business owners, the idea of filing for bankruptcy may seem antithetical to the very entrepreneurial spirit that drives them. One wants to hold on, keep fighting even in the face of overwhelming debt. However, for many, business bankruptcy is just the opposite of giving up the fight: it's a last-minute tactic that can turn the game around, sometimes even faster than expected.

Take the case of a once-successful developer in a neighboring state who got into trouble (like so many others) during the recent economic meltdown. Trying to hold on to his businesses hit by one foreclosure after another, he poured $25 million from his personal funds into them. But eventually he was holding just over $33 million in assets compared to $170 million in debts, and knew it was time to try another strategy.

That strategy was filing for Chapter 11 bankruptcy, and it's paying off. Since filing in July, the developer took advantage of the automatic stay -- the rule which prevents creditors from seeking to collect once the bankruptcy petition is filed -- to negotiate a deal with a major creditor. Now, in the wake of these business debt negotiations, he just has to convince a judge that his creditors will benefit more from letting him exit bankruptcy and resume operations, now that the economy is turning around.

Chapter 11 is a unique process that affords business owners opportunities they otherwise might not have to turn their fortunes around. When it works, it generally is a better deal for creditors as well, who may not stand to gain as much from liquidation as they do from even partial repayment. We'll look at Chapter 11 and business reorganization in greater detail in an upcoming blog post.

Source: Crain's Chicago Business, "Owing $170 million, developer settles with lender, seeks bankruptcy exit," Micah Maidenberg, Aug. 19, 2014

Source: Crain's Chicago Business, "Owing $170 million, developer settles with lender, seeks bankruptcy exit," Micah Maidenberg, Aug. 19, 2014

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