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Can a business file for bankruptcy more than once?

On Behalf of | Apr 25, 2023 | Corporate Bankruptcy & Restructuring

Our country encourages entrepreneurship. We have various rules and regulations that can help individuals take an idea and make it into a successful business. Business structures like corporations can offer protection for the entrepreneur to follow through on this idea while protecting their assets and, in the even the idea was not so successful, bankruptcy can offer a way to move on or restructure.

Sometimes a bankruptcy is successful and other times it is not. Depending on the reasons for the failure, it is possible to move forward with bankruptcy a second time around.

How often does this happen?

A need for a second bankruptcy is not uncommon. In fact, many major retailers throughout the country are considering a second bankruptcy filing. In a recent example, David’s Bridal, a retailer known for selling most wedding dresses purchased in the United States, experienced a downturn during the pandemic. Not surprisingly, the rate of weddings dropped during and after the pandemic. Fewer weddings meant fewer wedding dresses and a decline in business for the retailer. Add in the current rates of inflation and financial struggles of families throughout the country and it is no surprise that the rate of wedding dress purchases has plummeted.

The interesting part of this filing is the fact that this is not the first time the business has sought relief through bankruptcy. The business also successfully petitioned for protection less than five years ago, towards the end of 2018. At that time, the business pointed to a decline in the rate of marriages in the country along with a shift towards more casual weddings and a failure to make advances in the online marketplace as the cause of their financial struggles.

It is now filing for a Chapter 11 bankruptcy for a second time and hopes to keep the majority of its locations open and shift into a more successful business model.

Is it successful?

The answer depends on the details of each case. In this example, the wedding business is looking for some new ideas and has begun a search for buyer who can keep the business going. This could lead to new and innovative ideas that may lead to necessary changes for future growth.

However, the fact that this is the second filing in less than five years posses some hurdles. Although the courts may still approve the filing, the business could find it difficult to get future investor and creditor support.

We do have some data to help guide these decisions. This is not the first time the country has seen an uptick in second business bankruptcy filings. A similar occurrence happened back in 2010. At this time, Hostess Brands was one of many businesses that entered a second bankruptcy. The company focused on operations after the first round but did not address its debt. During the second round it leaned up and moved forward. It also added a focus on innovation, keeping its business relevant in an evolving marketplace. The move has proven successful as the business has posted eight consecutive quarters with revenue growth at almost 10%.

This success story is one that business leaders who are in a similar situation can emulate by taking steps to help better ensure the second filing is successful, both during the court process and into the future. This means not just dealing with the debt that led to the bankruptcy but also the operational issues that led to the debt and an eye towards future growth.