When government regulators began to make it more difficult for tax preparers to issue loans to consumers based on their anticipated tax refunds, Jackson Hewitt Tax Service Inc. faced a financial crunch. Regulators had called these loans unsafe, but Jackson Hewitt was relying on the proceeds and encountered problems with its creditors as a result.

On May 24, Jackson Hewitt filed for Chapter 11 bankruptcy protection, and it planned to reemerge from bankruptcy as quickly as possible. To do this, the nation's second-largest tax preparer prepared a thorough restructuring plan.

As part of a Chapter 11 bankruptcy, a business can continue operating while it restructures its debts. In its bankruptcy filing, Jackson Hewitt listed $388.6 million in assets and $444.8 million in debts. As part of Jackson Hewitt's plan, secured creditors who were owed about $357 million will exchange their secured debt for ownership of the company. In addition, these creditors agreed to provide a new loan.

Jackson Hewitt's bankruptcy plan initially met opposition from unsecured creditors, who would not get any compensation under the original plan. As a compromise, the company agreed to set aside $1.1 million for these creditors.

About two months after filing for bankruptcy, Jackson Hewitt won approval of its restructuring plan this week. U.S. Bankruptcy Judge Mary Walrath gave her approval to the plan, which will give 75 to 80 percent of the company to the Bayside group, with Wells Fargo & Co. and the Bank of Ireland receiving the rest. The creditors have agreed to give the company a new $115 million loan to keep the company in operation until the start of next year's tax season.

Sources: The Wall Street Journal, "Jackson Hewitt Set to Leave Chapter 11," Peg Brickley, Aug. 8, 2011

Thomson Reuters News and Insight, "Jackson Hewitt wins OK to emerge from bankruptcy," Nick Brown, Aug. 8, 2011