Prepackaged Bankruptcy

We never thought this day would come, but our company, Fashion Sporks, Inc., is in serious financial distress, and is considering filing for bankruptcy. It’s a sad day, but thanks to something called a “prepackaged bankruptcy,” we can hopefully shorten the duration and minimize the expenses associated with entering Chapter 11 (otherwise known as Business Bankruptcy and Reorganization Land).

A prepackaged bankruptcy is basically an agreed-upon Chapter 11 bankruptcy arrangement, and it works like this: as soon as Fashion Sporks realizes how dire its financial straits actually are, the company leadership schedules meetings with shareholders, creditors, suppliers, etc. to set up a plan to get through (and hopefully out of) the whole bankruptcy thing as quickly and cheaply as possible. Once a plan is outlined, the shareholders will vote on it, and then Fashion Sporks can begin the months-long process of consolidating and repaying debts, possibly liquidating some assets, and potentially restructuring the organization to prevent more bankruptcy woes in the future.

While lenders and other creditors usually aren’t thrilled when one of their client companies goes bankrupt (and probably neither is the company itself), they usually tend to appreciate the heads-up that comes with a prepackaged bankruptcy so they’re not caught completely by surprise.