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Wisdom Industries Ltd., a carnival ride manufacturer, strives to give customers a thrill, but its business loop-de-loops have provided executives with a different breed of white-knuckler. The Merino, Colo., operation is poised to emerge from its second bankruptcy in three decades, making it a case study for how to survive and even thrive using Chapter 11 protections. The court-chaperoned reorganizations, the first beginning in 1974, each had greatly different circumstances, but both allowed the eastern Colorado company to continue producing rides such as the Astroliner and the Gravitron. "The first was really luck and perseverance," said Chief Financial Officer George Edwards. "The second was really planned and carried out for a reason." Though few companies survive bankruptcy, it's a pitfall of business that can be a methodically planned event instead of a haphazard dive into an abyss. "It's like chemotherapy: you come out a lot sicker and a lot weaker if you come out," said John Wasserman, an attorney with Denver-based Katch Sender & Wasserman. Wisdom's first lesson in reorganization came after it made an ill-advised attempt to enter the wood stove business in 1974. Its carnival-ride sales, though strong, provided only seasonal work. Searching for something to keep valued workers on the payroll year-round, Wisdom began manufacturing wood stoves, and the trusting owners quickly found themselves strapped for cash and under the gun from creditors. Though the stove business turned to ash and Wisdom had to file for Chapter 11, orders began pouring in for a simulated rocket ride called the Astroliner. "That really pulled them out," Edwards said. The second, Edwards explained, was a strategic move to consolidate and disperse a swarm of lawsuits dogging Wisdom. The Chapter 11 brought all the cases to Denver before the bankruptcy judge and they were able to settle $35 million in claims for $134,000. While some may view the move as a slick attempt to dodge the system, Wisdom saw it as a survival tactic. Not only did it shake off a ton of litigation, but the Chapter 11 allowed Wisdom to get product liability insurance to protect it from future suits. It wasn't, however, without a downside. One bankruptcy, not to mention two, provides a long-lasting stain on any businesses' records. "It's going to take a very long time to go away no matter how healthy we get," Edwards said, boasting that Wisdom is the second-largest carnival-ride maker in the country. "It's very healthy." Few companies are so fortunate. One lawyer estimates the success rate at about 10 percent of the relatively few companies that file for Chapter 11 bankruptcy each year. The other 90 percent end up on a liquidation scrap heap. In 1996, businesses and individuals filed for Chapter 11 bankruptcy 109 times in Denver's U.S. Bankruptcy Court, according to the court clerk. The court received 16,336 total bankruptcy filings last year, including 13,086 requests to go straight into liquidating Chapter 7 bankruptcy. Reducing the pain Though bankruptcy is rarely an attractive option, local bankruptcy attorneys say there are some ways to make the process less painful whether you want to sell the company, liquidate it or nurse it back to health. Wasserman advises people to abandon the ostrich approach that puts many executives and business owners in denial. "Instead of avoiding the problems, what they should be doing is talking to a professional," Wasserman said. The typical scenario involves desperate hope and costly delays that allow bills to pile up and destroy a company's credibility. "There is nothing to be salvaged at that point," he said. "They have burned their creditors because they have been shucking and jiving." Harvey Sender, also an attorney with Katch Sender & Wasserman, sees bankruptcies from the perspective of a trustee, but his advice is similar. "The best course of action is to maintain some level of credibility with your creditors," he said. "That means telling them the truth instead of lying to them. If you have an angry group of creditors, it's going to be harder and more expensive." There are ways, however, to keep a business out of the lawyers' hands. Steve Demos, president of White Wave Soy Foods, credits the survival of his natural-food manufacturing business to "straightforwardness." The Boulder entrepreneur has had to give the straight dope to creditors more than once, telling them they can either stick by White Wave during the lean times or fight it out in bankruptcy court. "It's the crash- and-burn syndrome that we consider the cycle of business," he said. White Wave, riding a crest in 1994, borrowed big money when cash flow was good to bankroll product expansions. Two years later, times were tight and the banks came calling. "It's amazing how short their memories are," Demos said. "It's unbelievable." While the first step is laying out the path to wellness, Demos said the second is execution. "Let's not kid around, you've got to do it," he said. Sometimes, however, management can't be part of the solution because it is part of the problem. Peter Spanberger, vice president and managing director of the Denver office of RHR International Co., is often asked to analyze management structure of faltering businesses. The consulting psychologist examines the leadership of a company that isn't living up to its potential before a fiscal meltdown. His company often looks at divisions of larger companies concerned with lackadaisical performance, but sometimes owners put themselves under the microscope. "Readiness of the executive group to look at itself and the individuals' willingness to look at their contributions is a pretty good indicator of success," Spanberger said. Success, though, often hinges on replacing the top executives to provide fresh vision. Charles Steinbrueck was brought into stop Grease Monkey Holding Corp.'s leaking market share in the quick lube and oil change business. His first job as president and CEO was to restore confidence in the company to stop an exodus of valuable talent. "Good people start leaving, and it's just a downward spiral," Steinbrueck said. He did it by establishing a clear vision and setting twice-annual goals to get the company on track and dissipate the "loser mentality." In Grease Monkey's case, Steinbrueck elected to abandon a haphazard strategy that scattered 200 stores in 30 states and instead focus on Colorado and the surrounding area where its franchise is strongest. "I want to create a nimble, strong regional company," he said.