When a business is in financial trouble, it can file for bankruptcy to either liquidate its assets and go out of business or reorganize and try to stay afloat. The latter process is known as a Chapter 11 bankruptcy, and it offers a business the opportunity to enter into business debt negotiations with creditors. A Chapter 11 filing can be a complex situation, so any business considering this route should seek the advice of a professional who is knowledgeable about the process.
A Brooklyn hospital is expected to seek Chapter 11 bankruptcy protection this month due to its massive debt. The hospital, which is the largest employer in the Bedford-Stuyvesant neighborhood, plans to use the filing to keep its doors open while it negotiates a merger with another hospital in the Brooklyn area. The filing has been anticipated for months, with the hospital hiring a firm specializing in business restructuring last winter and repeatedly asking state health officials for financial assistance.
The hospital was hit hard by changes in payment policies the state put into place in 2009. The overhaul caused a 40 percent drop in the hospital’s Medicaid revenue. Approximately 65 percent of the hospital’s patients use Medicaid, a government health program for low-income people and the disabled. The cuts in Medicaid payments, coupled with a low number of commercial insurance contracts, caused the hospital to lose money. The hospital ended the 2010 financial year with a $57 million loss. In October 2011, hospital administrators laid off 200 employees, saving $10 million, but the hospital still generated a $33 million loss at the end of 2011. The hospital was also forced to stop payments to its largest secured creditor.
Ten other New York City hospitals have found themselves in dire financial situations since 2005. A bankruptcy filing is an attempt at debt reorganization to allow the hospital to remain open and serve the community. Any business undergoing a severe financial crisis should consult with a professional who is familiar with the legal issues relating to business operations to help the decision makers involved understand all of the available options.
Source: Crain’s, “Another bankrupt Brooklyn hospital,” Barbara Benson, Dec. 2, 2012