Though many set out with a plan to reorganize, it is more likely that they won't be able to, Perrell said. They cannot come up with a sufficient plan to pay their creditors, and many simply can't afford Chapter 11. It's a long, expensive process.
Christos Gioni is giving it a shot. He filed for Chapter 11 protection in August for the Italian Inn, his family's Hyattsville restaurant, hoping to find a way to pay his restaurant's debts and 30 employees and to restructure the business, which has seen revenue drop about 20 percent this year.
"It's not cheap at all, but in order for us to stay open and function and be here for the clients and guests, we took this opportunity," Gioni said.
The Italian Inn has roots going back to 1961 under a different owner. But for the past two decades it has been run by the Gioni family, with his mother, Mimi Gioni, pitching in to cook pizzas and occasionally wash dishes to help establish the restaurant as a favorite spot for local residents. Some of the people they're used to serving have slipped away, however.
"People are not coming out as frequently as they used to," Gioni said. "We're having to give discounts and coupons just to get people to come out a bit more often, and people are just not spending as much as they were before."
And then there's the problem of the building. It's older and needs work, but the credit crisis has made it difficult for the Gionis to get small-business capital improvement loans. Still, they had to do the work.
Gioni looks at the Chapter 11 process as a chance to pull the restaurant out of a rut. He's still waiting for court approval.
"We're almost 50, and we want to stay here another 50 years," he said. "We're all battening down the hatches to ride out this storm."
BANKRUPTCY LAWS
The laws are designed to enable debtors to resolve obligations by dividing assets among creditors without prosecution. For businesses, there are two basic types:
* Chapter 7 is known as the "liquidation" chapter. It is the most common form of filing and essentially shuts down a company, distributing all of its assets among creditors. The court appoints a trustee to oversee the proceedings, collect and sell any assets and distribute the proceeds to creditors. Typically, lenders recover only 10 percent to 15 percent of what they're owed.
* Chapter 11 is used to reorganize the business and develop a plan to pay debts - all or in part, depending upon negotiations - through future earnings. It puts the company under the protection of the court and the supervision of a trustee, while a fresh start strategy is developed. It is a time-consuming and expensive process, approved only if a court determines that the company's future is more valuable than its current assets.
SOURCES: U.S. Bankruptcy Court for the District of Maryland; Baltimore Sun research
