An Indiana business, with assets and liabilities totaling as much as $100 million dollars, declared bankruptcy last month. The Indiana Limestone Company, based in Oolitic, has been quarrying stone just south of Bloomington for over 150 years. The business owns and operates mines that, according to its own marketing material, were the source of 67% of the so-called Nation’s Building Stone, in 1930. Just a few weeks ago however, in late February, Indiana Limestone filed for Chapter 11 bankruptcy, and anticipates having to lay off over 160 employees starting at the end of April.
Chapter 11, named for its title in the Federal Bankruptcy Code, is basically a reorganization of the business debts. Filing for Chapter 11 does not necessarily mean that the business will have to sell all of its assets and close immediately after the bankruptcy court proceedings are concluded. Rather, the goal is for the business to stay open. Chapter 11 does mean that the business has to come up with a detailed plan showing how it will become profitable again, and which and how much of its debts will be repaid with these profits. The business’s debts are restructured, renegotiated, and reordered, and once the court approves the plan the business has 5 years to repay.
Filing under Chapter 11 offers debt relief in a number of ways. Three significant parts to the process are:
1. Reducing Lease Payments – if your business has a lease that is overly burdensome and makes it nearly impossible to make a profit, the court may enter and renegotiate or cancel the lease entirely
2. Scaling Down Secured Debt to Actual Value – your business may have a number of secured loans that have accumulated and become impossible to pay. Under Chapter 11, all that interest and depreciation on the collateral of your loan becomes unsecured and only the actual value of the asset remains secured. So if you bought equipment for your business and the balance on the loan is $50,000, but the equipment is only worth $10,000, only that $10,000 remains secured. The other $40,000 becomes unsecured and is paid back, after other secured debt, over time if the business can make enough money to do so.
3. Stopping Creditors – as in other sections of the bankruptcy code, once a business has filed Chapter 11, creditors may not contact the business, period. They must now communicate directly with the business’s bankruptcy attorney. The business is now able to focus on meeting profit goals, while not worrying about making payments.
Chapter 11 is available to individuals as well as businesses, but in order to qualify for Chapter 11, a person’s income and/or debt must be higher than the Chapter 7 or Chapter 13 minimums. Chapter 7 bankruptcy is more common for individuals and small businesses. If you think filing for bankruptcy may helpful to you or you business, then contact a local bankruptcy attorney who is experienced handling bankruptcy proceedings.
By: Christopher L Arrington