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Chapter 11 Bankruptcy: How Do You Finance Post-Filing Operations?

chapter-11.jpgChapter 11 bankruptcy is also frequently referred to as a restructuring bankruptcy or as a reorganization bankruptcy. This is because the primary purpose of this type of bankruptcy is to allow the filing business to shed burdensome liabilities so that it can come out of the process on a sustainable financial path. Of course, actually getting through Chapter 11 and coming out in good shape can be difficult for any business. In fact, far too many businesses fail to ever regain stable financial footing. Ultimately, there is one specific challenge that all filing businesses face: The ability to access capital for post-filing business operations.

What You Need to Know About Post-Petition Financing

In many cases, when a business files for Chapter 11 bankruptcy protection, all or nearly all of its liquid assets may only be used with the permission of the secured party who has a claim to the assets, or with the permission of the bankruptcy court. In other words, filing for bankruptcy will often dramatically restrict a company's legal ability to use its remaining cash. As such, it is critically important that filing businesses plan ahead to ensure that there will be sufficient financing for post-petition operations. In general, the best thing that can be done is to reach out to the secured parties and to negotiate with them to get a right to use cash or liquid assets that would otherwise be restricted.

A second option that may be available for businesses is to reach out to current or new lender to seek financing for post-petition operations. Your company may be able to find a firm that is in the business of "DIP lending". It should be noted that when companies seek financing through this route, they must comply with strict regulations and will typically need to receive court approval and will be required to pay fees as well as an above-market interest rate.

Disruption of Operations Must Be Prevented

Ultimately, the bottom line for businesses entering Chapter 11 is that they must be able to keep their operations ongoing. An involuntary disruption of operations could cause serious damage to the value of the underlying business. Indeed, the disruption may make it all but impossible to restructure successfully. It is imperative that businesses are able to access sources of operating capital. If your business is concerned about this issue, please consult with a qualified bankruptcy lawyer as soon as possible.

Contact Our Office Today

To request your free business bankruptcy consultation, please contact our team today. Our dedicated San Jose Chapter 11 bankruptcy lawyers will help your company find the best path forward. At Diemer, Whitman & Cardosi, LLP, our firm represents companies throughout the Bay Area, including in Solano County, Contra Costa County, and Napa County.



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