The latest bankruptcy announcement demonstrates that every industry has been hit by the recession.  Simmons Co. has announced plans to file for Chapter 11 Bankruptcy.  Simmons Co. is the maker of Beautyrest mattresses.  The choice to file for Chapter 11 bankruptcy will enable the company to restructure debt as they transition to new ownership.  Their total debt burden is around $1 billion.  Simmons hopes to reduce their debt burden to $450 million.  The plan will also allow Simmons to pay Simmons Bedding vendors, employees, and senior bank lenders in full.

The filing by Simmons highlights the options that are available through bankruptcy.  Many people perceive of bankruptcy as a death knell for a corporation and equate it with the closing of a business.  Certain types of bankruptcy can result in total liquidation of certain assets to repay creditors.  However, Chapter 11 can be an effective tool for debt restructuring, where a small business can work through their debt obligations without closing their doors.  This is an important option for businesses to consider at this stage in the recession.  For some businesses, closing the doors may simply be the best option.  The services or items provided by some companies are no longer in demand and the future potential for profitability is slim.  However, some companies have products or services that are still in demand, but have simply become another victim of the recession and crunched cash flow.  Chapter 11 may be a better choice for them if they don’t want to close the doors, but rather need a nudge to get them through the last stage of this recession.

Chapter 11 is used by businesses including sole proprietorships and corporations.  You don’t have to be a major corporation in order to take advantage of its restructuring potential.  Upon the filing of a petition, a small business owner becomes what is called a “debtor in possession.”  This means that you maintain control of any property or assets until your bankruptcy is final and your reorganization plan has been confirmed.  Essentially, you are allowed to continue operation of your business while the bankruptcy is pending.  When you are a sole proprietor, many of the same requirements as individual bankruptcy are imposed.  For example, you will be required to provide a credit counseling certificate and pay a filing fee.

Bankruptcy is an important decision and resource to consider when you own a business that is struggling with debt management issues.  Simmons Co. is the first of many companies that have used restructuring as a way to continue their operations, while getting a handle on their fiscal fitness.  Before you close the doors and say good night to your business, consider talking to a bankruptcy attorney in your area.