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Chapter 11 bankruptcy may require layoffs to balance the budget

| Sep 27, 2021 | Chapter 11 |

Business bankruptcy can help a company renegotiate its debts if it wants to continue operating or get rid of liabilities when it is about to shut down for good. Companies trying to stay open often have to make drastic changes to curb their costs and improve their profit margins. 

A company attempting to reorganize in a Chapter 11 filing may need to make some difficult decisions to keep the business operational. It’s also possible that creditors will demand certain concessions when you negotiate with them during bankruptcy. 

When your business initially files the automatic stay, it can temporarily delay difficult decisions, much like it does with debt collection. However, the early days after a Chapter 11 filing or during a creditor’s meeting may be when your company has to make a difficult decision about reducing its workforce.

Reorganizing can be internal as well as financial

Chapter 11 is a reorganization bankruptcy, and the process often involves re-working the finances for the business so that they are sustainable in the long run. However, sometimes the company needs to make drastic changes to achieve a sustainable budget or get creditors to agree to work with them. In addition to discharging certain debts and renegotiating others, a business struggling to meet its monthly obligation may also need to reduce its workforce to decrease its operating expenses. 

During layoffs or downsizing related to a bankruptcy filing, your company can eliminate redundant positions and scale back its operations so that it can continue to do business after bankruptcy. Ensuring you are practical in your downsizing efforts and not opening the company up to discrimination claims will be very important to protect its financial future. 

Careful planning before filing and appropriate steps during bankruptcy can help a company maximize the benefits that it reaps from filing a Chapter 11 bankruptcy.