A well-known California builder has filed for bankruptcy. William Lyon Homes, based in Newport Beach, filed for Chapter 11 bankruptcy last month after agreeing on a reorganization plan with its creditors.

The bankruptcy filing will allow the company to reduce its debt to $328 million from $510 million, according to a news report.

The company, which has reportedly borrowed $206 million from Thomas Barrack's Colony Financial Inc., listed liabilities of between $500 million and $1 billion in the documents filed in U.S. Bankruptcy Court. Under the prepackaged bankruptcy, hedge fund Luxor Capital Group LP, may now obtain control of the builder, according to a filing with the U.S. Securities and Exchange Commission.

According to William Lyon Homes, the Lyon family will reduce its stake in the business to 20 percent, down from almost 95 percent. However, the Lyons family has agreed to invest an additional $25 million into the company and will receive warrants that may, at some point, increase their ownership.

Colony Financial and investors has agreed to the plan.

While Chapter 11 bankruptcy is typically a solution for businesses with high debt and is most often associated with corporations, it is sometimes available for small businesses, too.

With the economy the way it is and no quick recovery in sight, many California businesses may be in need of debt solutions as they struggle to stay in business. Filing for bankruptcy is just one way to find debt relief. Keeping ownership of your business is often possible if the right conditions are set into place, depending on the circumstances. A bankruptcy attorney can help to design creative solutions to financial problems.

Source: Bloomberg Businessweek, "William Lyon Homes Files for Bankruptcy With Reorganization," Victoria Batchelor, Dec. 20, 2011