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LJN NewslettersNewsSectionsThe Corporate Counselor

Dispelling 10 Myths About Bankruptcy

BY Mark Manski, Nancy Mitchell
January 30, 2013

Corporate bankruptcy is an area that is often feared and misunderstood by those who believe that bankruptcy will be the end of their business. In reality, most businesses operate with limited difficulty in Chapter 11. Moreover, a well-planned corporate bankruptcy can solve a number of problems for companies or their subsidiaries facing distress, and is preferable to an uncontrolled liquidity or other business crisis. Labor issues, landlord/tenant disputes and vendor relationship questions can all be satisfactorily addressed within the context of a Chapter 11 filing. Bankruptcy can also be used as an effective tool by companies seeking to acquire businesses. This article dispels various misconceptions about corporate bankruptcy that can impact a company's rights and interests during a bankruptcy proceeding.

Myth 1. A Company in Bankruptcy Can No Longer Obtain Credit and Will Be Placed On COD By All of Its Suppliers

In Chapter 11, a debtor is authorized to operate its business and is permitted to obtain unsecured credit and incur unsecured debt in the ordinary course of business without the need to obtain court approval. In turn, suppliers and other vendors often extend credit to corporate debtors and do not necessarily require debtors to pay cash on delivery.

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