Company Bankruptcy Filing

“To Bankrupt or Not To Bankrupt”, that is the question that small business and big business owners alike ask themselves when their once-promising business start up is well past a tune up and is in trouble.

This economy is challenging for many businesses.  Not only are sales suffering, but costs in many cases are still rising.   Credit is getting tougher and tougher for businesses to tap into, and credit costs for some are also on the rise.  Many businesses are more “recession proof” than others, and those businesses that suffer the most are those that are embattled on every front.  Often at no fault of the business owner other than a tough economy, skittish consumers spending less, a tightening credit environment and other variables well outside of that business owner’s control…not a flawed business plan or irresponsible owner.

When faced with what to do with a business that is floundering and the debts and assets alike that have accumulated over the life of the business, many business owners are left confused, sometimes in denial, often overwhelmed and finding it difficult at best to have to think through the “worst case scenario” options rationally.   It is a complex maze to navigate, and one that not only has legal implications, but emotional and ethical issues to handle.

Putting the emotions aside can be very difficult.  A small business is often your “baby”, a dream that you made real and something that you not only put your equity into, but also your sweat equity.  It was to be an annuity, a business that could support you and your family into retirement, a business that could be passed along to your children or sold to another investor and future business owner/operator.

The ethics and the legal issues are complex.  Companies can opt to simply liquidate their assets and close there doors, effectively ceasing all operations.  This can be done without a bankruptcy filing.  While heartbreaking, it is one way to handle a business that cannot be resuscitated.  In this way, you liquidate the assets, attempting to get the most money that you can for them and you decide where those funds are distributed.  You can ensure that you take care of pending payroll issues, taxes, or the creditors that you want to pay first.

And, the assets can vary as well as their ease in liquidation.  Intellectual property, customer and vendor lists, leases, property, equipment, license.  Do you know how best to sell those and/or return them?  Can you manage to sell the assets, and are there other managing interests that you have to address?    With the price of real estate in many markets a real challenge, how will you sell any property or buildings that are part of the assets of your business?  Will you lose security deposits; can you terminate a lease or sublet? 

And, of course the process varies if you are incorporated, a partnership or a sole proprietorship.   You need to know how liquidating assets in each scenario affects you and your business.  You also need to explore what bankruptcy means to each type of business setup.  Even incorporated businesses have different dynamics depending upon if it is an LLC, a C corporation, an S corporation or even non-profit.

As you can see, this can cause a business owner long term stress and legal issues.  In addition to dealing with these issues on your own, your creditors can and most likely will sue you and/or the officers of the business and the corporation.  While the individual involved can claim that they have to assets from which to pay a law suit,  that individual, or those individuals, have to spend a great deal of time in court defending themselves and may find a judgment is entered against them. 

If a business declares bankruptcy, it may protect certain assets from creditors and the automatic stay gives the business the ability to settle taxes and payroll instead of aggressive creditors obtaining all assets.  In addition a trustee manages the liquidation of assets and distribution of funds.  This allows you to manage your affairs while the bankruptcy process is ongoing. 

You may find yourself able to stay open while your debt is restructured as well.  This allows you to continue to operate and attempt to run your business with less stress and with restructured overhead.   This can bring business owners hope and time to repair business issues that can positively impact their ability to survive this economic downturn and come out stronger, “leaner and meaner” and a completely viable business for the years ahead.

The bottom line?  Contact a bankruptcy attorney in your area that understands how to help a business through this complex process.  Bankruptcy has long term affects on you, your ability to do business in the future, obtain loans and more.  What is offered here are just some general, broad thoughts and questions to ponder.  Your business, your finances and your situation is most likely far more complex, and you want sound legal representation to ensure that you cover every base and protect yourself, your assets, your financial future and your entrepreneurial future.

Company Bankruptcy Filing Resources is intended to inform you about the different aspects of a business bankruptcy, the issues surrounding bankruptcies for small businesses and offer tips and resources to assist you on your path to making the right decision for you and your business.  Ultimately, this is not legal advice, the opinions offered are simply that and you should always confer with an attorney before making any business decision as important and crucial as bankruptcy.