Born Again

It Goes to 11

Convinced your business can survive Chapter 11? Willing to put in the effort that will be required to save it? Good. You're going to need that determination to make it through alive.

For anyone accustomed to being able to make instant decisions, bankruptcy is a torturous process. Everything has steps. Everything has to have a plan. Get used to making decisions by committee. It begins when your attorney files an application for court protection from creditors under Chapter 11-which is almost always granted, pending approval of your plan. The good news: Your creditors can no longer pester you. The bad: Your every business move from here on out will be second-guessed by the judge and a committee of your creditors.

You have 120 days to put together a reorganization plan for saving your company, which your creditors will vote on. "I would compare it to doing a root canal on every tooth in your mouth," says Ginsburg. And as if that's not painful enough, yours is just one of many cases that the judge is overseeing. You'll always have to wait your turn as the judicial process grinds on.

You'll need two things headed into Chapter 11 to guarantee your survival. First, you need positive cash flow from operations-or the possibility of positive cash flow after taking immediate steps to shrink your expenses.

Second, Shulman says, you need a wad of cash before the judge approves your plan. That money will pay your attorney's retainer fee (cash in advance, thank you), which can run from $5,000 to $20,000, says Ventura. You can sock away cash by not paying creditors for a month or two before filing, or you can secure an agreement with your bank before you file for sufficient debtor-in-possession financing to kick in after you file.

Despite the difficulty, Chapter 11 does work. Sometimes it can provide you with an unexpected confirmation that you're doing the right thing.

Because Moe Ginsburg is a local institution, its filing was covered in all the major New York media-newspapers, TV and radio. "We had customers come into the store who said they'd heard about the events and wanted to show their support," says Ginsburg. "I was very taken aback by that. It really lifted my spirit."

It also made him realize that he would turn the business around.

"I work seven days a week. Nothing will get in our way to getting back on our feet."

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This article was originally published in the September 2001 print edition of Entrepreneur with the headline: Born Again.

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