bankruptcy

Debunking 4 Business Bankruptcy Myths

Angela Manning Business, Finance , , ,
Debunking 4 Business Bankruptcy Myths

While there are plenty of articles on the web that dispel consumer (i.e. personal) bankruptcy myths, there are few if any that focus on the misunderstandings and misinformation that surrounds business bankruptcies.

To remedy this critical knowledge gap, here is the truth about 4 enduring business bankruptcy myths:

Myth #1: Filing for business bankruptcy spells the end for your business.

Fact: If you file for chapter 11 bankruptcy, you’ll be able to keep your business operational while you restructure and repay your debts. Many large companies like General Motors have successfully emerged from chapter 11 bankruptcy.

Myth #2: Filing for business bankruptcy means that you will lose all of your business assets.

Fact: Some of your business assets — such as those that are required to generate income and profit — are likely to be protected from liquidation (i.e. sold by the court-appointed trustee with the proceeds being distributed to creditors).

Myth #3: Bankruptcy court is pro-creditor and anti-debtor.

Fact: Overly-aggressive creditors (which unfortunately describes most of them) repeatedly tell debtors that the court won’t be sympathetic to their plight. On the contrary, they say, the court will be hostile and punitive. This simply isn’t true, and never has been.

The court is not for or against creditors or debtors. The court is interested in two things: correctly applying prevailing law, and ensuring that the bankruptcy process is properly structured and documented.

Myth #4: Filing for business bankruptcy will lead to an exodus of customers, employees, suppliers and vendors. 

Fact: As noted above, the purpose of chapter 11 bankruptcy is to give businesses a realistic opportunity to restructure their debts while they keep their business operational. If it was true that customers, employees, suppliers and vendors raced for the exits the moment they learned about a bankruptcy filing, then it wouldn’t matter if a business remained open: it would be doomed.

Fortunately, this isn’t true. Filing for bankruptcy does not indicate that a business has done anything deliberately wrong, and it certainly has nothing to do with criminal activity. Essentially, it is an administrative protection and process.

With this being said, businesses that file for chapter 11 bankruptcy will typically need to get the trustee’s permission to make investments, procure equipment, and so on. This is simply to ensure that the purchase is in alignment with the debt restructure plan.

The Bottom Line

Filing for business bankruptcy is a serious decision, and shouldn’t be done without consulting an experienced bankruptcy attorney. To give your business the best chance of long-term success, remember that bankruptcy-related facts are your friends — and myths are your enemies!

How to Get Out of Debt and Avoid Bankruptcy

Angela Manning Finance , , , ,
How to Get Out of Debt and Avoid Bankruptcy

Indebtedness is rising across America. The good news is that you are not the only one facing crippling debts. Also, there are plenty of things you can do to get out of debt. If debt becomes too much to pay off, you may have to file for personal bankruptcy. Many people prefer to avoid this scenario due to various reasons, including not wanting to hurt credit scores. If you are currently in deep debt, here are several things you can do to alleviate your situation:

Make a Repayment Plan

The best way to get out of debt is to pay back all your loans. So, don’t be scared of the red notices. Repay at least something back so your creditors don’t have a reason to sue you. If you have multiple debts, you will have to start making a plan to pay it all back. You can prioritize certain debts to pay back, such as loans with high interests or loans that could lead to loss of a vital possession, like a house or a car. You don’t have to do this alone. Talk to your local financial consultant or Scottsdale bankruptcy attorney to weigh all your options first.

Negotiate with the Creditors

Don’t avoid the creditors and dread collection calls. If the debt has become too much to pay off, you can always try to renegotiate the terms of payment with the creditor involved. If you default on a loan, the creditor suffers a loss too. So most creditors prefer to extend due dates or lower interest rates rather than have a debtor who defaults. You can try negotiating yourself, or hire a lawyer to do this on your behalf.

Cut Back on All Unnecessary Expenses

In addition to the above, you must make certain decisions with regards to your personal finances to get back on your feet. Expect that you may have to spend the next two or three years in extreme frugality until your debts are paid off. You will have to eliminate all unnecessary expenses for things like clothes, shoes, or vacations. Create a household budget and track all income and expenses. If there is an expense that can be eliminated, it will have to go until you are debt free. This will be quite difficult for many, but compulsive spending habits will have to be reined in.

Get a Second Job

You can largely eliminate debt by increasing your income, so you can use the extra cash to pay off creditors. If you already haven’t done so, get a second job at least on a part-time basis. You may be able to work from home too depending on what you are good at. The point is to make more money than you did before, and use that money to pay down your debt.

Check the Attic for Things to Pawn

Not everyone can just go out and get a second job. If this is the case, there are other means to get your hand on extra cash to pay down debt. Search your house for old vintage items or things you no longer need. Those old vases, toys, or clothes may be valuable enough to sell online. You can use a site like eBay to auction off old items and earn some extra cash in a time of need.

If all else fails, you can file for bankruptcy. It’s not as bad as everyone thinks. Certain forms of bankruptcy, like Chapter 7, allows a court to eliminate unsecured debts like credit card debt. But first, try the above, and talk to a lawyer.