Frecuently Asked Questions | Success stories
Is Bankruptcy an Option?  


  Bankruptcy is a term that is often used loosely to describe a business that has shut its doors. In reality it is far more formal and serious than that.

Literally, bankruptcy is a legal process that involves attorneys, the courts and a United States Government Trustee. Chapter 11 (Chapter Eleven) Bankruptcy is used to reorganize a company with the intention of satisfying its creditors and ultimately emerging as an entity able to survive on its own. Chapter 7 (Chapter Seven) is for liquidation of a business. Any property of value will be sold or turned into money to pay your creditors.

Declaring bankruptcy is time-consuming and extremely expensive. Tens of thousands of dollars are spent on Attorneys fees and reorganization can often take up to a year. Declaring bankruptcy also means that you effectively give up control of your business. You will be under the constant scrutiny of a U.S. Trustee and any significant financial decisions will require the Trustee's approval.

If you truly want to pay your creditors (which most businesses in financial difficulty want to do) bankruptcy is often the least effective way to get them paid. Because the legal process is drawn out, creditors can wait years for satisfaction and often they are forced to settle for mere cents on the dollar. It is logical to assume that creditors will not do business with you once you declare bankruptcy. Perhaps the most serious consequence of declaring bankruptcy is the indelible mark it leaves on your credit and reputation. You will be labeled with the worst credit rating possible and the stain of bankruptcy can never be erased.

Bankruptcy should truly be considered as the last option. Most small businesses simply close their doors if they can't survive. This saves time, legal costs and avoids the black mark of bankruptcy.

The growing popularity of business debt restructuring is due to the fact that bankruptcy is simply not a viable (or productive) option for small businesses that want to continue operations, but find themselves overwhelmed with debt. Debt Restructuring is an alternative to Chapter 7 Bankruptcy (Chapter Seven). This relatively new field draws upon professionals who have experience with the issues facing both debtors and creditors. Successful business debt restructuring requires negotiation of reasonable and fair payment plans with creditors while leaving the debtor enough cash flow to meet operating needs. Debt restructuring is often the only way a business in financial stress can satisfy its creditors and focus on business instead of bills.