Kathryn DavisThis month, two completely different companies, Ditech Holding Corporation and Payless, Inc., filed Chapter 11 bankruptcies for the second time in as many years.  However, the purpose of the Chapter 11 filing is different for each company.

Ditech files for Chapter 11

Ditech Holding Corporation, along with its subsidiaries, including Ditech Financial LLC and Reverse Mortgage Solutions, Inc. has filed for Chapter 11 bankruptcy in the Southern District of New York.  Ditech has a plan to restructure its debt and continue to operate.

Ditech along with its subsidiaries is an independent servicer and originator of mortgage loans.  It is also a servicer of reverse mortgage loans.  The company is based in Pennsylvania and has approximately 3300 employees.

The second filing comes almost exactly a year after the first. According to Thomas Marano, President, and CEO of Ditech,

“Since we completed a recapitalization last February, we have made important progress on our strategic initiatives and our expense management efforts. However, as a result of market challenges that have continued to accelerate and pressure our business, we must take further action. We intend to use this process to restructure our balance sheet and help us meet our obligations. We will continue to evaluate a broad range of options with the goals of maximizing value and creating the best path forward for our business. We are pleased to have the support of our lenders in this process.”

Ditech has received commitments for up to $1.9 billion in financing to support operations as they continue through the Chapter 11, and says that its customers will not be affected by the filing.

Payless will Liquidate

Payless, on the other hand, plans to use Chapter 11 to liquidate.  It will close all 2500 stores located in the U.S. and Canada.  Around 16,000 employees will lose their jobs as a result. Payless will begin closing stores in March and all should be shut down by May.

With Payless’s first Chapter 11, the company planned to restructure its debt and continue operations.  Unfortunately, it suffered the same fate as Radioshack, Gymboree, and American Apparel, and had to file a second Chapter 11 and close its doors.

Stephen Marotta, who last month was named as the chief restructuring officer for Payless, said that Payless had too much debt, too many stores, and too much corporate overhead after emerging from the previous bankruptcy.

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