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Chapter 11 bankruptcy can be a good thing for business

When thinking about your business, you know that failure is not an option. Unfortunately, 80 percent of new businesses fail within the first 18 months, according to Forbes. What options do owners have when a business is in the doldrums? Legal options are available to help businesses bounce back from even the worst financial circumstances, and a high-profile example is taking place right now.

Chapter 11 bankruptcy can be a signal of future profitability

Although many businesses fail within their first 18 months, others can sustain decades of success before a changing economy phones a wake-up call. The 70-year old retailer Toys "R" Us recently filed for Chapter 11 bankruptcy after struggling to pay back a $3 billion loan. 

With the holiday season approaching, Toys "R" Us executives said the timing "couldn't be worse," but the incentive for seasonal cash in conjunction with the Chapter 11 bankruptcy process could be what the company needs to turn its future around.

When a business files for Chapter 11 bankruptcy, it can work with attorneys and creditors to formulate a reorganization plan. With this arrangement, a business outlines how it will restructure the company to become profitable once again. For some, bankruptcy can mean failure, but for companies that qualify for Chapter 11 bankruptcy, there may be room for optimism.

Restructuring can spawn innovation

Although Toys "R" Us long found success with their aisles and aisles of toys, their good graces with consumers came to an end when they failed to adapt to changes in the way kids play. Kids have traded their action figures, puzzles and Game Boys for touch screens and virtual reality.

Following their bankruptcy filing, Toys "R" Us announced plans to roll out virtual reality toys in stores around the country, including three in Florida. Thus, the retailer hopes to capitalize on this emerging market of toys to become profitable.

What right for your business?

Chapter 11 bankruptcy can be used by small businesses to restructure too. Advantages of this type of filing include:

  • Up to 180 days to renegotiate with creditors
  • Flexible for business with up to 500 employees and $2.19 million in debt.

The specifics of Chapter 11 bankruptcy and the pros and cons of the process for your business should be discussed with an attorney before filing. The business world can sneak up on you, but as the example of Toys "R" Us shows, sometimes facing a new reality can be necessary for potential viability in the future.

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