New York consumers are not the only ones facing insurmountable debts, with minimal assets to pay them back. Similar situations happen to New York businesses for various reasons, including loss of expected income, increased competition or loss of profits due to natural disasters.
For example, a New York bus company recently filed for Chapter 11 bankruptcy protection. The company specialized in providing trips from New York City to the Hamptons, as well as winery tours in Long Island. According to the company, the bankruptcy filing was spurred by cash flow issues that arose from Hurricane Sandy. It lost $1.5 million dollars due to the storm that caused it to default on its loans. The company then attempted to refinance through a loan, but claims the terms may amount to usury.
The company feels it had no choice but to file for Chapter 11, so it could repay creditors, while continuing to operate. The company’s reported assets are $6.6 million, and its debts total $5.1 million.
A bankruptcy filing under Chapter 11 is mainly used by businesses with severe debt to allow them to reorganize. Filers for Chapter 11 are able to propose a plan for obtaining profitability after the bankruptcy has been discharged. Additional benefits of this form of filing are additional time for creation of such a plan, as well as the ability to reorganize the business by cutting costs and pursuing other income sources.
Businesses in this form of bankruptcy should revise loans and leases to remove or lower current debts. Creditors are then classified by priority of repayment according to certain factors.
Many businesses attempting to workout repayment plans with their creditors, while continuing their business and pursuing future profits, can choose to pursue Chapter 11 bankruptcy. But, businesses facing similar circumstances should assess their situation and proceed with the best option for them.
Source: The Wall Street Journal, “Hamptons Bus Service Files for Bankruptcy,” Jacqueline Palank, Sept. 8, 2015