Many corporations that file Chapter 11 bankruptcy will present a “prepackaged” bankruptcy case to the bankruptcy court. A prepackaged bankruptcy is a cooperative effort between the company, its shareholders and its creditors to develop a plan to restructure the company that will take effect once the bankruptcy case is filed. The idea is to shorten and simplify the bankruptcy process and save everyone concerned money and time.
Can a prepackaged bankruptcy work for you?
Most often unsecured creditors are discharged at the end of a Chapter 7 or 13 bankruptcy cases, so there is usually no benefit to working with an unsecured creditor prior to bankruptcy. However, there may be an incentive to coordinate with a secured creditor before the bankruptcy is filed. This may be especially true when dealing with smaller companies, local banks, or individual lien holders who may be apt to misinterpret your intention. In other cases, there may be a large benefit to be gained by coordinating with the creditor prior to bankruptcy. For instance, some homeowners have been able to modify a first mortgage to bring payments current, and then file bankruptcy to strip off a second mortgage. The result is a lower plan payment and/or a shorter plan term.
As a general rule you should not volunteer information to your creditors as it may cause otherwise avoidable problems. Some lenders may accelerate the collection processes if they believe a bankruptcy is imminent, especially in the case of delinquent auto payments. Once you have filed bankruptcy, the creditor must obtain permission from the bankruptcy court to repossess, foreclose or collect.
If you are struggling with bills you cannot pay, discuss your situation with an experienced bankruptcy attorney. Your attorney can guide you through the pre-bankruptcy process and advise you on the best course of action to achieve the most benefit. Every situation is different, so consult your attorney.
For a free consultation, call Haines & Krieger at 702-880-5554.