Finding a Fresh Start in Bankruptcy Court

There are some companies for which bankruptcy is not an end, but a chance for a new beginning. Chapter 11 of the U.S. Bankruptcy Code establishes a process for a business to reorganize, eliminating some obligations and restructuring others to lower monthly costs going forward. “Banktuptcy is good for taking debt that's been accumulated and right-sizing it," says Michael Goldberg, a bankruptcy lawyer in Boston. It's also an opportunity to make additional adjustments to the business—to give it a fresh start with a fighting chance.

In Chapter 11, the debtor usually gets first crack at presenting a plan to reorganize its affairs. The plan can be approved over the objections of individual creditors or even whole groups of creditors. In crafting a plan, a debtor has some powerful tools at its disposal. For example, a debtor reorganizing under Chapter 11 can accept or reject each of its ongoing contracts (though it cannot unilaterally modify those contracts), including purchases, sales, and leases.