The United States Bankruptcy Code is comprised of several different chapters. Some chapters deal with administrative matters. Other chapters provide specific guidance on how a case must proceed. Chapter 13, a repayment bankruptcy, is reserved for debtors who are “natural persons,” as opposed to businesses or corporations. Businesses and individuals can file Chapter 7, a liquidation bankruptcy, but only individuals can receive a Chapter 7 discharge. When businesses need to restructure, they turn to Chapter 11, commonly called the “business bankruptcy.”
Recently the parent company of American Airlines filed for Chapter 11 bankruptcy protection. Chapter 11 is a business reorganization, not a liquidation, and has been used by several other airline companies (including Delta and United) to rewrite union contracts and reduce debt. American Airlines will continue to operate during the bankruptcy and travelers will see very little change – at least during the early phases of the bankruptcy.
American Airlines has declared bankruptcy because it needs protection from creditors to continue to operate while it reorganizes its finances. According to an article in the Wall Street Journal, AMR reports that it has $29.6 billion in debt and $24.7 billion in assets. On the day it filed for bankruptcy, AMR requested permission from a New York bankruptcy court judge to pay for fuel, labor, and other critical expenses to keep American flying. During Chapter 11 bankruptcy, all major financial decisions must be approved through the bankruptcy court.
Attorney Harvey Miller, who represents AMR, offered a great piece of bankruptcy advice for struggling businesses. At the AMR bankruptcy hearing, Miller said that debtors should not “wait too long. Don’t wait until the course is irreversible. That is what American Airlines is doing today.”
If your business is fighting to stay alive, consult with an attorney and discuss how the federal bankruptcy law can help. Chapter 11 can stop creditor action while your business develops a plan for reorganization. Every debtor’s situation is different, and an experienced bankruptcy attorney can explain the process and benefits of Chapter 11 for your company.