Orange County is home to numerous businesses, ranging in size from the smallest mom and pop stores to multinational corporations. Along with consumers in Orange County, economic troubles have affected small businesses and large corporations alike. While consumers often are able to find relief in Chapter 7 of the Bankruptcy Code, the solution for businesses is more often to be found under Chapter 11 of the Bankruptcy Code.
While a Chapter 7 filing is often referred to as “liquidation,” a Chapter 11 filing is referred to as “reorganization.” This name is appropriate, because the purpose of most Chapter 11 filings is to devise a court-approved plan for the business to repay its creditors. This plan “reorganizes” the debts, however, by reducing the amount of debt owed to some creditors, while completely discharging debt owed to other creditors. This plan may also include attempts to recover assets, cancel various contracts, and other such steps to help put the business back on a path to profitability. Of course, the reorganization plan must be approved or “confirmed” by the court before it will go into effect. Once confirmed, however, the debts that arose before confirmation are discharged, and the new repayment plans and contractual obligations designated by the reorganization plan supersede any such prior obligations.
So while Orange County residents may find their financial difficulties resolved by Chapter 7 or Chapter 13 of the Bankruptcy Code, most of our local businesses that are struggling with debt may be able to turn to Chapter 11 for help.
