Bankruptcy: The Option of Last Resort

Low yields in areas of the state most affected by past weather problems, or expanding dairy operations during recent years of extremely low prices, have lead some to consider bankruptcy.  Certainly, businesses unable to service all indebtedness, facing pressure from creditors and possible legal action, may seek protection under the Bankruptcy Code, but only as the last resort.  Voluntary workouts should first be considered, to include: restructure of debts or repayment of loans over a longer term,  partial sale of assets, interest only payments, reduction of interest rates, or forgiveness of part of the debt.  These negotiations may include additional collateral or other credit enhancements provided to the lenders.  When all else fails, the Bankruptcy Code offers the following choices:  Chapter 7 liquidation, Chapter 11 reorganization, or the streamlined version of reorganization for family farms, Chapter 12.  Chapter 12 is modeled after the Chapter 13 bankruptcy for wage earners and was added to the Code in 1986.  It is important to have a cash flow plan well thought out before filing a Chapter 12 because of the shorten time lines provided by the Code.  Within 90 days of the filing of a Chapter 12 petition, a repayment plan must be presented to the Bankruptcy Court.  Except for cause, confirmation hearings must conclude within 45 days after filing of the plan.  The University of Minnesota Extension Service has an excellent series of fact sheets, for example “Chapter 12 Reorganization,”  (including a listing of the fact sheet series). http://www.extension.umn.edu/distribution/businessmanagement/DF7301.html

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