Taking an economics class and was wondering what the consequences for a company that files chapter 11 Bankruptcy might be? What does it do exactly in a general sense?
Chapter 11 reorganizes the company to pay a large portion of existing debts due to cash flow constraints under current operations. For example, an airline company may have more assets than debts, but insufficient liquidity to meet debt payments as they come due.
Consequences:
- Credit ratings will be downgraded
- Working capital will be depleted in accordance with BK petition
- BK Trustee oversight on business operations until BK is complete
- Potential risk of not being able to reorganize, which could result in liquidation of company (Ch 7)
