The dominoes are beginning to fall. Hard on the heels of Journal Register’s bankruptcy filing this weekend, Philadelphia Newspapers LLC filed chapter 11 on Sunday. The publisher of the Philadelphia Inquirer and Philadelphia Daily News indicated that its assets and liabilities are both about $500 million and that it needs court protection to restructure its debt. “Our operations are sound and profitable,” said CEO Brian Tierney. It’s the debt that’s the problem.

Philadelphia Newspapers is the fourth newspaper company to file for bankruptcy since December, following in the path of Tribune Co., the Minneapolis Star Tribune and Journal Register.

So what happens now? Bankruptcy isn’t a death sentence. On the contrary, it can be the breath of life. Most major US airlines have declared bankruptcy at some point, some of them more than once. Bankruptcy gives a business the opportunity to shed debt and unprofitable operations, work out a sustainable business model and start life over.

This doesn’t come without cost, however.  Many executives exit the scene and the company lays bare its financial records for the public to see.  The business effectively loses control over its own operations, ceding oversight to a court which must approve nearly every management move that’s relevant to the business.  Bankrupt companies have almost no credit worthiness, meaning that they must learn to live within their means, which isn’t a bad thing.  Assets are often sold to pay off creditors.  With the market for newspaper companies in its current condition, however, it’s more likely that unprofitable operations will be shut down. Business continues pretty much as usual until the courts work out a plan.

Given the volume of bankruptcies currently choking the US courts, it’s likely that it will be many months or even years before these troubled businesses emerge from Chapter 11.  And the carnage isn’t likely to end here.  According to Alan Mutter’s Default-O-Matic, at least four other newspaper chains – including GateHouse, McClatchy, Media News and Morris Publishing – are in junk bond territory, which means they are at risk of default. More dominoes are likely to fall.

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