David_Vieau_123systems_bankruptcyWhen A123 Systems, a company that makes lithium batteries for use in automobiles, filed for Chapter 11 bankruptcy in mid-October, employees worried about what this would mean in terms of their jobs. A123 has not said anything regarding layoffs; however, it did receive interim court approval to use part of its $72.5 million financing from Johnson Controls to pay employee wages, salaries and benefits.

Chapter 11 bankruptcy is a type of bankruptcy that is open to both businesses and some individuals, although it is usually taken advantage of by businesses. This type of bankruptcy allows a business to stay open, reorganize its finances and even get additional funding. In A123’s case, Chapter 11 is allowing it to make several financial deals in order to get the money it needs to get out of debt and keep running the business. So far, A123 has gotten the following sources of funding:

  • $72.5 million from Johnson Controls, Inc.
  • $465 million from Wanxiang Group.

The interim court was responsible for determining what A123 could do with the financial help it received from these sources. The Delaware District Bankruptcy Court, which made the decision, still needs to make a final decision about what A123 can do with the rest of the assets it received from these companies and any other sources. That decision will be made by the end of October.

A123_chapter11_bankruptcyThe Delaware court’s decision was a relief to international suppliers. A123 does a lot of business overseas, and suppliers in China and other foreign countries were concerned about how they were going to get paid because of the bankruptcy. The court’s decision helps ensure that A123 can pay its non-US suppliers. After the court’s decision was announce, A123’s shares of stock went up by 12 cents, presumably because of increased confidence in the business’ ability to overcome its financial problems and continue to thrive.

Although A123 is a business, individuals may be able to take advantage of a similar process to the one A123 went through in order to declare personal bankruptcy. Bankruptcy protection can allow individuals who are overwhelmed by debt to protect their assets, pay off a portion of their debts and start their financial life over. Debtors who are struggling with large amounts of debt may want to take advantage of this option.

There are three types of personal bankruptcy:

  • Chapter 7
  • Chapter 11
  • Chapter 13

Chapter 13 bankruptcy is similar to Chapter 11 bankruptcy for businesses like A123; individuals who owe millions of dollars may take advantage of this option. Most individuals file for Chapter 7 bankruptcy, which involves liquidating some assets to pay debts, or Chapter 13 bankruptcy, which allows individuals to enter a structured repayment plan to resolve debts over the course of three to five years.

Both individuals and businesses who want to file for bankruptcy should see a bankruptcy attorney in order to make sure everything is filed correctly and increase the chances of a satisfactory outcome.