Why now? A company like J.Crew was already operating with $1.65 billion in debt.
“Usually you see a company end up in Chapter 11 when they run out of cash,” says Lawless. Presumably, these companies tapped into every resource and weren’t able to make enough cash to remain operational. That’s when you turn the page and—bang—Chapter 11.
Explain what happens next using 12 words or less.
The company will create a plan to save or sell its business.
OK, a few more words than that.
Using J.Crew as an example, the company and the law firm it’s partnered with will put together a reorganization plan intended to get the company back to profitability—and that makes it possible for lenders to get paid back fairly. The plan is presented in bankruptcy court. “The debtor, or whoever's proposing the plan, has to put on evidence to prove feasibility,” says Rapoport. “You put on experts, they testify, someone can cross examine them, and then the goal is to figure out a plan so they won’t be back [in bankruptcy].”