For-profit Corinthian Colleges Inc. fends off legal claims with Chapter 11

Recently we discussed some cost-efficient tools that struggling businesses can use to address their debt problems. Specifically, Article 9 of the Uniform Commercial Code provides a way for debtors and creditors to resolve debt issues while avoiding the cost of bankruptcy.

Still, filing for bankruptcy is the right decision in some cases. For example, bankruptcy triggers an automatic stay on creditor actions and typically halts any outstanding litigation against the business that filed. Any lawsuits against the company can then be prioritized by the bankruptcy court, so particularly complex situations can be simplified by placing matters in a single courtroom.

These issues have come up in the widely publicized bankruptcy of Santa Ana-based Corinthian Colleges Inc. The for-profit college filed for Chapter 11 bankruptcy protection, listing total assets of $19.2 million and debts of $143 million. Just five years ago the company reportedly had $1.4 billion in assets.

Heavy debts aren't the only problem Corinthian faces. The company has been sued by California Attorney General Kamala D. Harris and the U.S. Consumer Financial Protection Bureau for allegedly engaging in fraudulent financial and marketing practices. Also, in April, Corinthian was fined $30 million by the U.S. Department of Education for allegedly paying employment agencies to hire students in order to boost official placement rates.

It should be noted, though, that bankruptcy triggers a stay against the government and private creditors alike. A judge does have the option of lifting a stay on a particular legal claim if it is too complicated to be resolved in bankruptcy court, but such cases are rare.

If you are unsure of whether to file for bankruptcy or pursue an out-of-court solution, speak with a business law attorney. A lawyer with experience in these matters can assess your situation and advise you of your most cost-efficient options.

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