Under what circumstances might a company choose to file for bankruptcy instead of negotiating with creditors?

Filing for bankruptcy can be a strategic decision for a company facing significant financial pressures. When a company anticipates large legal settlements or is dealing with severe operational challenges, the situation may become untenable. In such scenarios, bankruptcy offers a structured legal process that can provide immediate relief from creditor claims, allowing the company to reorganize its debts or liquidate assets more effectively than in ongoing negotiations.

With large legal settlements, the potential for gigantic financial liabilities can threaten the viability of a company. If these liabilities aren't addressed proactively, they could lead to insolvency or a situation where a company can't even meet its routine operating expenses. By choosing bankruptcy, the company can protect itself from its creditors temporarily, creating room to determine the best course of action to move forward—whether that means restructuring under a Chapter 11 proceeding or liquidating under Chapter 7.

Negotiating with creditors may not be feasible in such challenging circumstances, as creditors may not agree to terms that would help stabilize the company. Thus, bankruptcy can serve as a more definitive solution for a company facing extensive liabilities or operational difficulties.