Recently, the Crystal Cathedral, a megachurch in Orange County, well known for broadcasting the “Hour of Power” to over 1 million people in over 150 countries, has filed for Chatper 11 bankruptcy.  The church was originally started by Rev. Robert Shuller in a rented drive-in movie theater in 1955.  However, the Cathedral is suffering under a $55-million dollar budget deficit and a 27% drop in revenue.  It has gotten so bad, that the live Christmas special, that was a large tourist attraction, had to be cancelled.  This means, people can no longer come to see a performance featuring live animals imitating stories from the Bible.  However, much like debates on religion, the amount the Cathedral owes is hotly debated, depending on the source; the Cathedral has a $36million dollar mortgage and owes over $7million to several hundred vendors (including the use of live animals for the Easter and Christmas services). 

At first, the Cathedral and the venders attempted to work out an alternative repayment plan.  However, it appears that after a deal was worked out, a few creditors were a bit uneasy and pushed ahead with suits against the Cathedral. 

What Happens When A Creditor Sues

When a creditor sues a company, they are usually doing so because of either a breach of contract or for another reason.  The most common type of breach is a lack of payment as specified in the agreement between the parties.  While many companies will attempt to work out an alternative arrangement, if the parties cannot come to an agreement, the creditor will usually go to a court to seek payment. 

If a creditor wins their lawsuit, then the debtor (which would be the Cathedral), would have to pay the creditors damages (which is usually the amount owed under the contract).  However, when the debtor does not have enough money to repay their debts, the bank will usually allow the creditor to “attach” to a piece of property, specifically the property that the debtor purchased.  For example, if the person who supplies Donkeys, Ponies, Camels, and Albino Rhinos to the Cathedral had yet to be paid, the supplier would sue for the amount owed.  Assuming that the Cathedral did not have the money to cover the expenses, then the supplier would be able to sue the Cathedral and make a claim to their property.

What Is Chapter 11 Bankruptcy?   

Chapter 11 Bankruptcy is a type of Bankruptcy which is available to every type of business.  The difference between a Chapter 11 bankruptcy and other types of bankruptcy is that in most instances the debtor remains in possession of the business, but is subject to oversight and the jurisdiction of the court. This allows a company to continue to operate while reorganizing their assets and debts.  This bankruptcy can last for a few months or several years, but the company has to propose a plan of reorganization within 120 days (although this exact date depends upon the state).  After the 120 days, the creditors can also propose a plan, the creditors will then vote on a plan and hopefully come to an agreement.  If no agreement is made, then the company may liquidate (meaning that they sell off all their assets and repay their debts). 

What do you think?  Should a company be able to just declare bankruptcy and hope everythign works out?