Business Debt Restructuring: Regaining Financial Stability Without Filing for Bankruptcy
While filing for bankruptcy is an option for financially struggling businesses, it isn’t necessarily the only—or best—option. In many cases, it’s more advantageous for struggling businesses to restructure their debts outside the formal bankruptcy process. Learn about some key considerations from an experienced Miami bankruptcy lawyer at Edelboim Lieberman.
Many businesses struggle for many reasons. From economic uncertainty to increased competition, numerous issues can make it difficult for businesses to make payroll and pay their debts as they come due.
When businesses struggle financially, taking a proactive approach to resolving those struggles can be critical to avoiding unnecessary consequences. This might involve reorganizing debts under Chapter 11, or restructuring them outside the formal bankruptcy process.
What Does Business Debt Restructuring Entail?
Restructuring a business’ debts outside of the formal bankruptcy process can take a variety of different forms. Because debt restructuring does not involve going to court, businesses (and their creditors) have significant flexibility to craft solutions tailored to their specific risks and needs.
With this in mind, several potential solutions are available. When debtors and creditors share a mutual interest in avoiding default, they can often reach a settlement. Some examples of potential solutions include:
- Forbearance Agreements – Forbearance agreements provide an agreed-upon grace period during which struggling businesses do not have to make payments.
- Composition Agreements – Composition agreements consolidate a business’ debts owed to multiple creditors into a single, manageable payment obligation.
- Refinancing with a Lower Interest Rate – In some cases, creditors may agree to reduced interest rates to continue receiving timely payments.
- Refinancing Into a Longer Amortization – Another refinancing option involves extending the business’s amortization period, which reduces its monthly payments (but can increase the total cost of the loan).
- Debt-for-Equity Swap – As its name suggests, a debt-for-equity swap involves a creditor taking an equity stake in a financially distressed business in exchange for reducing the business’s outstanding liability.
As you can see, the options in this scenario vary widely—and, as we said above, these are just examples. If your business is struggling, an experienced Miami bankruptcy lawyer can help you consider all your options and pursue the solution that makes the most sense under the circumstances.
When is Informal Debt Restructuring Preferable to Reorganizing Under Chapter 11?
Generally, informally restructuring a business’ debts is preferable to reorganizing under Chapter 11 when it is the more cost-effective option over the long term. Even if restructuring a business’ debts is cost-efficient in the short term, it may not be the best long-term approach if it requires an extended amortization schedule or giving up ownership of the company.
Working with a business’ creditors rather than filing for bankruptcy can also help preserve critical relationships and funding sources, which is worth considering. Conversely, if a creditor is pursuing collection and a business needs immediate protection, then filing under Chapter 11 and securing protection under the automatic stay could be the best—and perhaps only—option available.
FAQs: Restructuring a South Florida Business’ Debts Outside of the Bankruptcy Process
When is it time to consider restructuring a business’ debts?
Consider restructuring as soon as a business’ debts start to become (or even threaten to become) unmanageable. A proactive approach is almost always best, and avoiding default helps businesses maintain leverage in restructuring negotiations.
What if a creditor is unwilling to consider restructuring?
If a creditor is unwilling to consider restructuring, it’s worth making sure all viable options have been put on the table. As discussed above, several options are available, and different options may be more desirable in different circumstances. Ultimately, however, if a creditor is unwilling to consider restructuring and your business is facing financial distress as a result, it may make sense to reorganize the business’s debts through a Chapter 11 bankruptcy filing.
Is debt restructuring a viable alternative to filing for bankruptcy under Chapter 11?
Debt restructuring is a viable alternative to filing for bankruptcy under Chapter 11 in many (but not all) cases. For example, if restructuring a business’ debts with one or a handful of creditors allows the business to regain financial stability, informal debt restructuring will often make sense. Conversely, if a business is completely underwater and needs to avoid defaulting on a long list of creditors, filing under Chapter 11 is more likely to be the best approach.
How a Miami Bankruptcy Lawyer Can Help
Even if bankruptcy isn’t your business’ best option, an experienced Miami bankruptcy lawyer will know your options and help you make informed, strategic decisions focused on your business’ long-term financial stability. When we represent businesses in this situation, we provide services including (but not limited to):
- Identifying all bankruptcy and non-bankruptcy options for resolving the business’ financial instability;
- Evaluating the available options and providing advice custom-tailored to the circumstances at hand;
- Engaging directly with creditors to explore restructuring options and negotiate as warranted;
- Preparing bankruptcy filings and securing protection in the U.S. Bankruptcy Court as necessary; and
- Pursuing comprehensive solutions that maximize our clients’ financial flexibility and minimize their risk going forward.
Schedule a Free Initial Consultation at Edelboim Lieberman
If you would like to discuss your business’ options with an experienced Miami bankruptcy lawyer at Edelboim Lieberman, we encourage you to contact us for a free initial consultation. Call us at 305-768-9909 or tell us how we can help online to schedule an appointment today.
