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What may tip scales for Phoenix companies on filing Chapter 7?

October 3, 2012 by  
Filed under Blog

On behalf of Ellett Law Offices , P.C. posted in 1. Chapter 7 on Wednesday, August 1, 2012

When a Phoenix individual or business is faced with levels of debt that are higher than their available assets there are often limited options for their financial future. Commonly, individuals and businesses turn to bankruptcy, Chapter 7, Chapter 11 or Chapter 13, as an answer to their debt. Chapters 11 and 13 essentially allow a company or individual respectively to reorganize and pay off debts. Chapter 7 is a filing that liquidates a company or a person’s assets in order to repay debts.
Some Phoenix area businesses may find the recent Chapter 7 bankruptcy filing of National Service Industries elucidating. The company provides linens to industries across the country, including the health-care, hotel, and restaurant industries. With declared assets of only $500,000 compared to their $100 million in various debts, the company will be liquidating under Chapter 7 in an attempt to pay off creditors.
With their Chapter 7 filing, National Service Industries anticipates closing its doors as the entire company is liquidated to pay off debt. The company’s board said in formal documents that it believes this is the best decision for the company as well as its creditors and other affected parties. The filing was a voluntary decision on the part of the company.
While National Service Industries could have chosen a Chapter 13 filing, it is likely that the significant difference between the company’s assets and their debts made the Chapter 7 filing more sensible for this company. There’s no word on what specific factors led to the company’s asset-debt imbalance. Perhaps it, like many Phoenix area businesses, faced stiff competition and was confronted with high costs of doing business. In a faltering economy, the chances of successfully climbing out of severe financial distress can be low. Sometimes dissolving under a Chapter 7 bankruptcy filing is the optimal option.

Source: Bloomberg Business week, “National Service Industries in Bankruptcy, Will Liquidate,” Dawn McCarty, July 12, 2012
Tags: Chapter 13, Chapter 7, Chapter11, bankruptcy


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