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Weighing the pros and cons of a prepackaged bankruptcy

On Behalf of | May 21, 2023 | Bankruptcy

A prepackaged bankruptcy is just one of the types of bankruptcy that companies in California could consider. It involves a reorganization plan that you create in collaboration with your creditors. The plan goes into effect once you officially enter a Chapter 11 bankruptcy.


A prepackaged bankruptcy would decrease the amount of time that it takes to go through a Chapter 11 bankruptcy. It also helps you save money on legal and accounting fees. Most creditors prefer a prepackaged bankruptcy because they have more say in the restructuring of debts. They also receive a resolution faster with this option than they would with a standard Chapter 11 procedure.

The publicity surrounding your company’s situation may be less negative because your creditors are already happy with the plan that they negotiated with you. Thus, news organizations are unlikely to receive negative interviews and reports from your creditors. Your company will come out of bankruptcy faster, which means that the media will have less time to report on it as well.

Potential drawbacks

Bankruptcy law requires that you have your shareholders vote on your proposal for a prepackaged bankruptcy. Two-thirds of your shareholders must agree to the plan.

There’s the risk that a creditor will refuse to work with you in creating a reorganization plan. They might become more uncooperative with the knowledge that you’re going through financial struggles.

Companies that opt for a prepackaged bankruptcy aren’t given as much time under bankruptcy protection. Some may perceive this as a positive because their goal is to bounce back fast.

A prepackaged bankruptcy plan could reduce the negative publicity, time and money involved in bankruptcy proceedings. However, it requires a two-thirds vote from shareholders and the cooperation of your creditors, which can be difficult for some copanies to attain.