Is Filing for Bankruptcy a Wise Business Choice?

Some 44,111 American businesses filed for bankruptcy in 2013, according to information from Tom Hals.

This is actually the lowest level since at least 2006, and marks an overall bankruptcy fall by 13 percent for both businesses and individuals. That said the question of whether bankruptcy is a wise choice or not is a difficult one to answer. How can businesses approach this difficult situation?

Inv&ALM Unit 11 Slide 26

Follow along as we take a look at some key considerations to keep in mind.

Understanding Your Options

It’s important that you take a look at what bankruptcy entails. After all, this can help you compare bankruptcy to any other options that you have available:

  • Chapter 7 is often the choice for sole proprietorships and small businesses, where a lack of assets and no future is seen. It involves the trustee selling assets to discharge debts that can’t be satisfied after selling assets to try to meet those debts.
  • Chapter 11 is an option if your business has a plan for future recovery. A court-appointed trustee will operate “under increased scrutiny,” according to the U.S. Small Business Administration (SBA), in this option.
  • Chapter 13 involves a repayment plan for paying debts. It can be used for sole proprietorships, though often it is for consumers.
  • Chapter 12 is for “‘family farmers’ or ‘family fishermen’ with ‘regular annual income,'” according to the SBA. It involves making installment payments to creditors over three to five years.

Asking some questions can help you figure out your options.

For instance, looking at how much of the business is secured, whether the business should be liquidated or reorganized, and the viability of a reorganization process can help steer you in the right direction.

Is bankruptcy a good option? This is a question that you can answer after looking at your business and analyzing the legal ramifications of filing for bankruptcy.

Planning for the Next Step

Whatever plan of action you take – to file for bankruptcy or to try to turn things around – you should plan appropriately. After all, either of these options can come back to haunt you if not carried out in the right way.

If you don’t decide to file for bankruptcy, do what it takes to make it work.

Stay out of the danger zone by taking a proactive approach. Cut your expenses and analyze your budget.

Make sure that you pay your payroll taxes, as penalties can pile up. You should also not hide your assets and fully disclose your financial situation – failing to do either of these could end up as fraud against you.

What if you file for bankruptcy?

Make sure you know the steps for what to expect. You should also plan a smooth transition practically for clients and/or customers.

Lastly, make sure you know what the next step is for your business and your future.

 

About the Author: Brian Neese covers an array of website topics, among which include business, social media and SEO.

2 thoughts on “Is Filing for Bankruptcy a Wise Business Choice?

  1. This is a great article and takes the bite out of what is involved in filing a bankruptcy! I like what you said “Whatever plan of action you take – to file for bankruptcy or to try to turn things around – you should plan appropriately. After all, either of these options can come back to haunt you if not carried out in the right way.” This has been our philosophy and we have found it to be sound. Great job!!

  2. I attribute the decline in bankruptcy cases to the public’s ignorance of what and how bankruptcy can help an individual’s financial situation.

    There are so many myths about bankruptcy still floating around in our society, that most people believe that if they file for bankruptcy their credit and social standing will be destroyed! Bankruptcy is not a “life destroyer”, it is quite the opposite in my opinion!

Comments are closed.