Small Business Bankruptcy

Small business bankruptcy is common among the many companies that are owned and operated by common people who place all they have on the line to succeed. Many become entangled in debt even though their company is thriving, forcing them to consider a business bankruptcy option. Small companies are the heartbeat of the nation's economy and America can ill afford to have so many bankrupt companies filing in the courts. For many owners, death to their dreams seem just around the corner as they frantically juggle payments to creditors in order to avoid looming bankruptcy. Creating a successful company without financial problems may be difficult, but allowing God to be part of the plans will give a company many more opportunities. "Thy faithfulness is to all generations: thou hast established the earth, and it abideth." (Psalms 119:90)

There are other options for owners who are facing this financial crisis. Many times there can be a plan implemented that will save the company, help the owner get out of debt, satisfy the debtors, and provide ongoing service to American consumers. A win-win solution is what is needed for all in projected small business bankruptcy filings. Many times a professional credit counseling service can design a financial plan that will meet everyone's needs while preserving the integrity of the owner.

Small businesses comprise almost 22 million of the companies in America and account for close to two-thirds of the employees hired in the country. There are approximately 40,000 bankruptcies that occur each year making it apparent that there should be workable alternatives to this tragic occurrence. Many owners that are considering a small business bankruptcy have found assistance through proper credit counseling services. These services can help an owner devise a plan that is workable within the available financial means that his or her business has.

Surprisingly, many lending institutions are willing to negotiate the debt owed them with professional, credit counselors on behalf of a small business. Sometimes, the negotiated debt can be as little as a few cents on the dollar. Even though lenders may not receive the full debt owed them, they are satisfied with what they agree upon because bankruptcy would only cause them to lose all their investment instead of part. Credit counseling services can work out a plan that provides for a payment schedule that is manageable by the owner. In cases that owners default on this agreement, all assets are generally sold and any cash is directed to the lenders.

A plan to get out of debt as well as satisfy lenders can allow a business to avert becoming bankrupt as well as continue to make a profit and grow. Many owners have seen their hard times throughout the life of their company, but know that planning is key in developing a financial future. An expert credit-counseling source can provide the direction and execution for a plan to survive financial hardships when business bankruptcy seems like the last option. Many times small companies are not in debt in an exorbitant manner. Many may only be in debt for as little $15,000 to $20,000.

However, to the owner who is crushed with credit card debts, vendors calling for their checks, personal debts, employee paychecks and lease agreements, filing as bankrupt may seem to be the only way out. Most small businesses are the result of personal dreams of someone and are considerably hard to let go of even in the face of mounting debt. That is why some owners hang on to their dream as long as they can before declaring business bankruptcy. Although for some, the struggle to stay above water becomes too stressful for all concerned and filing for bankruptcy is almost a welcome relief.

The financial entanglement can be very difficult to handle afterwards. Credit is damaged and a lifetime of assets may end up liquidated to pay back to creditors who are even then not fully paid off. Expert financial planning and assistance can often allow owners avoid business bankruptcy. Before choosing this option, it is vital to check the facts regarding other options including credit counseling and financial planning. There are many online agencies that offer financial counseling that is legally correct and professionally implemented to give the best option possible.

Most financial plans assist a small business owner in paying off debts and securing acceptable credit within 4+ years. If the individual has not been able to develop a financial plan that will pay off creditors and place them in good standing within 3 to 4 years, they probably should consider other financial plans. Considering the length of time that a small business bankruptcy stays on a credit history, it is worth the effort to explore as many options as possible before succumbing to business bankruptcy.

Bankruptcy Asset Protection

In a sagging economy, filing Chapter 11 bankruptcy protection may loom large on the horizon for many of the nation's failing enterprises. When a business incurs more debt than can be handled and the bank threatens to call in the note, it's time to consider drastic debt relief measures, and bankruptcy might be one of them. Due to an economy on the brink of recession, business owners are feeling the effects of consumers' tightened purse strings. Attorneys are filing a record number of bankruptcy asset protection cases, as large and small entrepreneurs bite the bullet to try to bail out of debt. Many companies opt to shut down, but that's not always the best solution. A corporation may have invested huge sums of capital in inventory, labor, and overhead; not to mention years of developing a strong customer base. Investors, shareholders, employees, and suppliers all have to be paid; and going out of business may not be an option, even if the business is in the red.

Companies fail for a myriad of reasons, many of which can be traced to poor fiscal management or an unruly economy. The lack of sufficient financial backing and cash reserves can leave businesses unprepared to weather a recession or a season of poor consumer spending. Conversely, in a burgeoning economy, smaller businesses may grow rapidly, but lack sufficient capital to stock enough inventory to keep up with demand. Crucial to building a successful enterprise is formulating a sound business plan, which forecasts projections for growth, current needs, and contingencies for slow economic times. Scripture teach us to count up the costs before attempting to build: "For which of you, intending to build a tower, sitteth not down first, and counteth the cost, whether he have sufficient to finish it? Lest haply, after he hath laid the foundation, and is not able to finish it, all that behold it begin to mock him, Saying, This man began to build, and was not able to finish." (Luke 14:28-30). Many fledgling operations close prematurely because of a failure to count up the cost of entreprenuership. High employee turnover, lack of management skills, or a high debt-to-profit ratio can all impede productivity, siphon off profits, and impact bottom lines. Whatever the reason for financial failure, struggling companies seeking to remain in business may want to consider filing Chapter 11 bankruptcy protection.

Chapter 11 affords businesses and corporations the opportunity to restructure management of the company and reconcile outstanding debt through bankruptcy asset protection. Once a petition is filed with the court; the judge issues a "stay," which immediately stops all debt collection proceedings and the seizure of business assets. The U.S. Trustee will set up a committee to represent and act on the behalf of all of the businesses' creditors. This committee usually consists of creditors holding the top seven largest accounts of unsecured debt. Unsecured debt is outstanding monies owed for which the creditor has no collateral.

Thirty days after filing Chapter 11 bankruptcy protection, the trustee will call a 341 hearing with the debtor, the bankruptcy attorney, and creditors' legal representatives in attendance. Business debtors will have an opportunity to testify before the judge regarding current indebtedness and management practices, along with other fiscal concerns. During the hearing, the debtor's attorney presents the debtor's plan to reorganize the business, make it more profitable, and settle creditor claims. A corporation debtor's reorganization plan must not only satisfy creditors, but it must also meet the approval of shareholders who have a financial interest or ownership in the corporation. Sole proprietorships or business partnerships' reorganization plans must also meet creditor approval. In addition to changing management, a sound bankruptcy asset protection plan may include dismissing non-productive employees, adjusting product and service lines, and developing a more successful strategy to remedy the current enterprise's shortcomings.

When all parties agree to the restructure plan, the court dismisses most outstanding debts, with the exception of those which are not dischargeable by law: IRS taxes, including penalties and interest; Department of Labor employer tax payments: child support and alimony payments; and employee paychecks and benefits payable 90 days prior to filing. Chapter 11 bankruptcy protection essentially creates a new enterprise, usually under the management of the previous owner's creditors. The former owner relinquishes the right to manage the business without the oversight of creditor "watch dogs." Shareholders and creditors who have a substantial financial investment in the failing business, thus become more involved in the day-to-day management of the newer, and hopefully, more improved operation. New management, enforced through bankruptcy asset protection, increases the chances that the business will remain open and that most monetary obligations will be met.

Filing Chapter 11 bankruptcy protection may not be advisable for owners who want to maintain control of their enterprises. Alternatives include selling the business to pay off creditors; laying off employees to reduce labor costs; negotiating with creditors, vendors, and financial institutions to work out more manageable repayment plans; and business debt consolidation. Filing Chapter 7 liquidation to turn inventory into cash to pay creditors may also be a possibility. Some near-bankrupt business owners may attempt to save a failing company by going into partnership with individuals who are financially solvent. Additional funding sources may provide much needed capital to keep the company afloat until the economy stabilizes. In the long run, alternative methods may be insufficient to avoid seeking business asset protection through bankruptcy court. Financially troubled entrepreneurs should seek the advice of lawyers and accountants to determine the best solution.

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