...That customer re-opened the following week with the same name on the door, the same employees, etc.
Hmmm... maybe I can try that on my house...
Chip
This comment has come up several times, and perhaps needs to be addressed. Not to be an apologist for bankruptcies, and fully realizing that there are some business owners that game the system, I'll state that this is the way Chapter 11 is supposed to work. Chapter 11 is supposed to provide temporary protection from creditors while the business gets its act together, the end result being that it stays in business, the employees keep their jobs, and everybody eventually gets paid. Unless there is evidence of outright fraud, the owner of a small business is most often allowed to continue running it as "debtor in possession." The thinking is who else can the court appoint that would do a better job of running the business? Could a court appointed attorney do a better job of running your business than you can?
This has got to be the situations that these recovery firms look for; they get a copy of the bankruptcy filing, make an educated guess as to the likelihood of the debts being repaid, and at how much of a discount, and then offer the creditor an amount that leaves them a healthy profit if all goes according to plan.
Meanwhile, the owner of the bankrupt business has to file a "reorganization plan" with the court that shows how they intend to become a viable business again. This typically takes a year to eighteen months.
There are many instances where there is no viable reorganization plan... the business was a bad idea from the get-go, and there is nothing that will make it profitable. In this case the court will order the business closed, and the assets auctioned off. The court can also convert the bankruptcy case to a Chapter 7, where the owner is out and a trustee is brought in to oversee the liquidation of assets.
The main problem with liquidating a business is most don't have many assets beyond a desk, telephone, and wastepaper basket, so there really isn't anything of value to be sold. The real estate is likely rented, the production machinery leased, and the production tooling may be owned by another legal entity set up specifically to insulate it from a bankruptcy.This is the point where all the creditors get stiffed. Realizing this, bankruptcy courts often clear their dockets by accepting reorganization plans that require unsecured creditors to take only partial payment, the argument being that they won't get any more, and likely less, from a liquidation.
Dennis
On Edit:
Worth a read for an overview of all the ways you can get screwed by a bankrupt business:
Chapter 11, Title 11, United States Code - Wikipedia