Hostess is the latest company to make news for filing Chapter 11 bankruptcy in U.S. Bankruptcy Court. The bankruptcy is the second in seven years for Hostess, which also filed for Chapter 11 bankruptcy in 2004 and completed its restructuring process in early 2009.

The company is citing labor agreements, labor costs, debt and the economy as its reasons for seeking Chapter 11 bankruptcy. Hostess faces nearly $860 million in debt with close to 100,000 creditors. It also has substantial expenses.

Most of the creditors are pension funds. Nearly 80 percent of Hostess' employees belong to one of 12 unions. Hostess claims that the medical benefits and pensions it must pay are making it difficult to make a profit. Similarly, the company claims that restrictive work rules created by the unions add to the problem. According to Hostess, it must "achieve relief for the crippling costs of these plans" in order to be profitable.

The company hopes to change its labor contracts or ask the bankruptcy court to stop the current labor deals in order for Hostess to rise out of bankruptcy. Hostess will continue to sell its popular baked goods during the bankruptcy.

Companies seek Chapter 11 bankruptcy relief for many reasons. The economy has been a factor in many bankruptcies over the last few years - small and big businesses alike. Chapter 11 bankruptcy allows a debtor to reorganize/restructure its business and debt. Cancelling contracts, as Hostess might request, is a potential option in Chapter 11 bankruptcy. Usually, the debtor continues to control business operations, with oversight by the court.

Source: New York Times, DealBook, "Hostess, Maker of Twinkies, Files for Bankruptcy," Ben Protess, Jan 11, 2012.