You Can Still Dine At A Restaurant After It Files For This Type Of Bankruptcy

The news of a favorite restaurant's bankruptcy is often treated as the beginning of the end, but if you haven't noticed, many spots that go bankrupt manage to survive for years, and even decades, afterwards. The half-decade since the COVID-19 pandemic has seen a wave of bankruptcies, with big names like T.G.I. Fridays and Buca De Beppo joining chain restaurants that went bankrupt just this past year. The reasons can vary, from poor ownership, to debt, to simply struggling with a decline in traffic, but when restaurants file for bankruptcy, they usually end up having two options. Chapter 7 is what we often imagine bankruptcy to be; you close up, sell off what you can, and the business is dead. If a restaurant you like files Chapter 11, there's still a good chance it will survive.

Chapter 11 can be filed by either the debtor themselves, whoever or whatever owns the restaurant, or be filed by the company's creditors. In either case, it gives a business breathing room to restructure its debts. This can take different forms, including negotiating with creditors, closing under-performing locations, and selling off assets, which may then put it in better financial shape to meet its debt obligations. During this time, the business can continue operating, too. Chapter 11 is not just preferable for businesses that want to continue operating, but for creditors who have a better chance of being paid back than they would if the restaurant went completely out of business.

Quite a few restaurants you might eat at have survived Chapter 11 filings. Applebee's went through it in 2011, and Sbarro actually went through it twice in 2011 and 2014. Many of the recent big names filings were Chapter 11s, and now those restaurants are poised to survive and continue serving people. Red Lobster survived bankruptcy after being purchased by new owners. T.G.I. Friday's Chapter 11 filing allowed the company to close some stores and sell off others to franchisees who were in better financial shape. The new CEO has said he hopes to start growing the number of locations again.

Chapter 11 bankruptcy is now available to more businesses. For a long time, it was mainly bigger corporations, as the expense of the legal proceedings put it out of reach for small businesses. However, the Small Business Reorganization Act of 2019 expanded protections, so it's more likely a small local spot can use Chapter 11 to survive. The one exception is a related filing called Chapter 13. This has the same effects as Chapter 11, but is only for individuals or sole proprietors of business. All other companies would have to use Chapter 11.

The restaurant business is tough and volatile, and while bankruptcy isn't good news, it doesn't have to be a disaster. Chapter 11 means that businesses with real customer bases can survive to serve them for years to come.