The economic downturn that began in 2008 has taken a toll on businesses, and the fitness industry is no exception. Declining memberships and greater competition have been among the challenges facing fitness facility owners. However, some owners have taken the opportunity to regroup by filing for Chapter 11.

The idea of filing for bankruptcy may seem intimidating and scary to club operators. Although a bankruptcy is not always the first option for business owners facing financial difficulties, for some operators, it can be a smart business decision and investment.

One of my clients, the owner of several fitness facilities in Connecticut, almost closed his business in early 2009, but after we restructured the facilities’ debts through Chapter 11 bankruptcy proceedings, the clubs are performing better than ever two years later. In October 2010, the company successfully emerged from bankruptcy when the United States Bankruptcy Court for the District of Connecticut approved their Chapter 11 plans of reorganization.

The bankruptcy proceedings offered the owner time to stabilize operations, develop and implement fresh marketing strategies, and negotiate with equipment lessors/lendors and landlords to create more feasible payment plans. The reorganized facilities now are viable, healthy businesses in a position to expand and grow to new cities.

When fitness facility owners understand their responsibilities during bankruptcy proceedings and get involved in the process, they are more likely to have positive results. When they lead their businesses through a successful Chapter 11 reorganization, owners must call upon the same dedication, perseverance, focus and hard work needed to reshape their bodies through fitness and nutrition. Filing for Chapter 11 bankruptcy allows owners to remain in control of the operations and work with their counsel to restructure debts. Once owners and their counsel devise a plan that demonstrates how the business intends to repay its debts, the plan is filed with the court and sent out for creditor approval.

The following are some items to keep in mind before deciding to go through the bankruptcy process:

Understand the time commitment. At the inception of the Chapter 11 proceeding, business owners must spend significant time gathering documentation that shows the business’ debts and then provide that information to their counsel. That information is then organized into a format that is filed with the court and shared with all of the company’s creditors and parties in interest for review and analysis.

Gathering the information and attending necessary meetings for the Chapter 11 proceeding combined with tending to operational issues can prove to be daunting for any business owner at times. Businesses that have successfully emerged from bankruptcy have owners that learned to effectively delegate operational tasks to managers and employees to free up the requisite amount of time that the owners need to dedicate to the bankruptcy process.

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