For some companies, filing for Chapter 11 protection is an easy way out. For others it is a necessity. Either way, filing a Chapter 11 is an expensive proposition—in a number of ways.
The expense of filing a business bankruptcy, especially for bigger companies, is sometimes a dollar and cents decision, since the larger the company the greater the professional fees, on a percentage-of-assets basis, the estate will incur.
Overall bankruptcy and other professional fees can amount to tens of billions of dollars a year for U.S. companies. Often the amount billed is based, not only on the duration of the case and the company’s assets but the location of the filing and the number of professional firms approved, by the court, to apply for fees.
Often creditors ask, how can some professionals justify high rates? Such professionals argue in favor of such rates, stating they increase the value of the company, which in turn increases the amount of money available to pay creditors. Right or wrong, high professional expenses are one of the major variables to consider before filing a bankruptcy petition.
Also, before deciding to file for bankruptcy consider the possibility of management losing control of the company. Trustees, creditors, shareholders and others often end up overseeing the operations of company once it files its petition.
Finally, another fact to consider is that a Chapter 11 proceeding is seldom a quick process. Often, the path to emerging from reorganization is a lot longer than management anticipates.