Given the low profit margins, increased competition, and potential dips in the economy, the restaurant business is inherently difficult. During tough times, however, restaurants can restructure their debts through Chapter 11 bankruptcy, rather than simply shutting down and closing.
Chapter 11 bankruptcy can be filed by individuals, small businesses, or large corporations. It involves reorganization of a company’s financial affairs accomplished by way of a written plan of reorganization that is approved, or “confirmed” by the Bankruptcy Court. A confirmed plan of reorganization can allow a company to restructure its financial obligations to its creditors so that it pays those obligations back over time.
It is not uncommon for restaurants in particular to reorganize under Chapter 11. It generally allows restaurants a level of breathing room allowing it to operate, while coming up with a proposed plan to pay back its debts over time. These debts can include vendor debt, unsecured loans, credit card debts, unpaid wages, and past due taxes. Particularly beneficial is the fact that the filing of a bankruptcy petition generally stops collection action, such as lawsuits and harassment from creditors.
One of the keys to filing a chapter 11 bankruptcy for a restaurant is understanding what orders are immediately needed from the Court upon filing in order to help a restaurant stay in business and comply with the United States Bankruptcy Code during its pending case. This includes obtaining orders to pay employees, keep utilities intact, and allow its owner to receive a paycheck.
While the Chapter 11 process can be lengthy and difficult, with the right representation and solid business prospects, a restaurant can utilize the Chapter 11 benefits in order to emerge from financial burden to become a profitable entity once again. If your restaurant is thinking of filing Chapter 11 bankruptcy, please contact Vik Chaudhry at the VC Law Group via telephone at (858) 519-7333 or contact us at info@thevclawgroup.com to discuss you options and prospects under Chapter 11.