Pros:
- Automatic stay as to lawsuits, foreclosures, collection actions, creditor actions, etc.
- Temporary deferral of pre-petition unsecured debt payments and with limitations, secured debt payments and pre-petition rent claims.
- Possibly avoid and recover involuntary preferential transfers – property taken by execution (levies)
- Preserve going concern of business
- Reduce interest rates to current market levels in certain situations
- Sell property free and clear of liens and interests if necessary
- Reinstate obligations that have been accelerated due to default (notes, leases)
- Borrow post-petition by giving lender a “priming lien”, “super administrative priority”, or other protection
- Extend payment of unsecured tax debts up to five years
- Assume or reject executory contracts and unexpired leases
- Reorganize financially (debt extension, orderly liquidation or retention of property, sale of assets, repayment of debts over time, assumption or rejection of executory contracts and unexpired leases)
- Can receive a discharge of pre-petition unsecured debts upon plan confirmation
Cons:
- Stigma
- Stress for business owner
- Loss of privacy
- Need to operate profitably and maintain good records
- Court control of all activities not in the ordinary course of business (approval needed for sales, financing)
- Restrictions on compensation of debtor’s insiders
- High costs (lawyers and other professionals retained by the debtor, also have to pay for costs of official creditors’ committee and possibly of secured creditors)
- Duration of the case from the petition date to the plan confirmation date, which will likely exceed initial expectations.
- Creditor motions and other filings that detract from reorganization efforts.
- Burdensome U.S. Trustee record keeping and reporting requirements on a monthly basis
- Restrictions on use of cash collateral (rents and accounts receivable that have been pledged)
- If do not reorganize, may end up being converted to Chapter 7