Many businesses have been hurt in the recent economic downturn. With many people facing unemployment and falling incomes, consumer spending has fallen and businesses in the hospitality industry have felt the impact.

Just last month, Perkins & Marie Callender's Inc. filed for bankruptcy protection. The company owns 85 Marie Callender restaurants in nine states, including California, and it operates 37 franchised locations in four states. In addition, the company owns 160 Perkins restaurants and runs 314 Perkins franchises across the country.

At the time of the bankruptcy filing, the company indicated that it plans to close 58 restaurants. The company listed $290 million in assets and $440.8 million in debts at the time it filed for bankruptcy.

When a business files for bankruptcy, there are distinct options available. Some businesses sell all of their assets and stop operating as a result of bankruptcy. In exchange, the business's debts are settled. This type of bankruptcy is called a Chapter 7 bankruptcy.

Perkins and Marie Callender's filed for Chapter 11 bankruptcy. In a Chapter 11 bankruptcy, the business continues to operate while its debts are reorganized. Recently, Perkins and Marie Callender's unveiled its plan to reorganize its debts. Apparently, this agreement was negotiated between the company and its creditors before it filed for bankruptcy.

Under the terms of the debt reorganization plan, many holders of unsecured debt will be issued new company stock. Unsecured creditors will have the option of receiving 10 percent of the value of the debt instead of stock, as long as the cash payment does not exceed $1.5 million. Secured debts will be rolled over and restructured as new secured notes in the same amount, plus interest.

Source: Bloomberg, "Perkins & Marie Callender's Files Plan to Implement Debt Swap Agreement," Bill Rochelle, 15 July 2011