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Well-known gun company files for bankruptcy

An important thing to remember about filing for bankruptcy is that seeking debt relief through this process doesn't make you a bad person. Individuals who find themselves in dire straits financially are usually in that situation because something unexpected happened to them. Some say countless numbers of families in this country are one emergency or divorce away from financial catastrophe. There is very little difference, in fact, between families and big business in this regard. Bankruptcy laws exist to protect both.

After 179 years in business, a well-known – some say famous – gun manufacturer has filed for Chapter 11 bankruptcy protection. According to reports, the company seeks debt relief through the courts because bondholders rejected restructure attempts designed to deal with its $350 million debt. Reports are an agreement is contemplated wherein the investor business owning 90 percent of the company agrees to buy its assets and secured liabilities under bankruptcy code provisions.

As can happen to individuals, the gun company reportedly never recovered from a military contract loss in 2013. It had been providing weapons to United States soldiers, relying on sales to the government, for decades. Losing the contract to a foreign company after a contentious bidding war, although not the sole reason for diminished sales, was reported to be the main contributing factor to its financial trouble. Other missteps in the gun market and strong competition in weaponry used by police have also played a role the reports say.

A difference between individuals filing for bankruptcy and a business doing so is that the sale of the company is the way it can achieve a fresh start. In this case, the company is heading to an auction sale that will be overseen by the bankruptcy court. The bankruptcy proceedings won't necessarily harm the still-operating business because it has benefited from a $20 million loan. It's future, however, remains to be determined.

The consumer bankruptcy process is governed by bankruptcy laws as a business reorganization would be. Chapter 13 plans allow for debt repayment and protection from creditors in the meantime. When income and assets don't support this approach, a Chapter 7 liquidation may be appropriate. Careful evaluation by a knowledgeable and skillful legal advocate will suggest the proper course.

Source: The Daily Beast, "Dropped by the U.S. Military, Colt Goes Bankrupt," Jacob Siegel, June 17, 2015

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