Saturday, August 10, 2013

Filing Bankruptcy is a Painful End to Your Startup

Businesses-File-For-BankruptcyIf you are just plain tired of working so hard, or your startup is not getting the traction you expected, should you shut down cleanly, or just file for bankruptcy and walk away? For those who think that bankruptcy is the easy way out, think again. Bankruptcy should always be the absolutely last resort.

The “advantage” of filing for bankruptcy, of course, is that it gets creditors permanently off your back, with no continuing lawsuits, based on funds derived from selling all assets. You can hand the stressful job of liquidating assets and negotiating with creditors over to the court.

The disadvantages are many and long lasting. Your credit rating will be lost for six to ten years, and your business image will likely be permanently damaged. Once declared bankrupt, you as the business owner will likely always face problems opening new business accounts.

To add insult to injury, for a Chapter 7 filing, most courts charge a $245 case filing fee, a $39 miscellaneous administrative fee, and a $15 trustee surcharge, payable in advance (does anyone see the irony in charging for bankruptcy?).

There are many other negative implications to bankruptcy. These include the fact that some loans may not be forgiven, your bankruptcy records are open to public review, and any irregularities spotted later can lead to criminal charges.

The best alternative is always to get the business back on track, and sell it at a reasonable value, or do a normal closedown with full payout to vendors and investors. The next best alternative to avoid the stigma of bankruptcy (and the cost) is to privately negotiate partial business settlements with your creditors.

Making the business healthy may be easier than you think. Usually the top problem is pressing debt or cashflow, so here are some approaches to these problems you should try before giving up on the business and damaging your ability to start future ventures:

  • Get a short-term loan. Visit some banks for the best rate and repayment plan that will help your business weather the financial storm. Do not rush out and sign for the first loan that is offered to you, or give up after the first bank declines.
  • Sell assets to raise cash. Now is the time for a thorough inventory of all assets in your business. Chances are that you will find some items you can sell, or property to mortgage, to help alleviate your short-term cash flow problems.
  • Trim expenses down to the minimum. If you have employees on your payroll, enlist their help. Be honest with them — let them know you might be able to save their jobs, at a reduced salary, if they can help you trim expenses down to the bare minimum.
  • Find a friend or family-member investor. If they believe in you, there is always someone who will invest additional cash into your business to help you get back on your feet. You just have to find the right one. At this stage, honesty is the best policy.

As a rule of thumb, only after you have exhausted all these options, and you still calculate that it will take more than seven years to repay your debt, then you should consider bankruptcy. The question is which of the many U.S. bankruptcy filing types you should choose.

For business bankruptcy, there is really only one choice – Chapter 7 liquidation, with partial payments to creditors. Chapter 11 is for large businesses seeking to restructure their debt and continue operation, and Chapter 13 bankruptcy is only for individuals.

But the worst thing about bankruptcy is the emotional impact. It will hit you over the head like a death in the family, a major illness, or a natural disaster. For your own well-being, as well as your business image, I recommend you hand off a running business. It may look like more work, but you will keep your sanity, your integrity, and your will to come back strong.

Marty Zwilling

0

Share/Bookmark

12 comments:

  1. That's PERSONAL bankruptcy - not a business bankruptcy!

    ReplyDelete
  2. I get a lot of great information here and this is what I am searching for. Thank you for your sharing such a great blog with everyone Property Management San Antonio

    ReplyDelete
  3. Thank you for giving the information on bankruptcy. I am eager to learn about different aspects of bankruptcy and I was searching different types of bankruptcy.
    credit restoration provo | provo chapter 13 | bankruptcy court | chapter 7 attorney | utah bankruptcy laws

    ReplyDelete
  4. Great Sharing about bankruptcy, Really useful information. Filing Bankruptcy really end your Painful stress and gain into Fresh Start Solution in your life. When you have made the decision it’s time to file for bankruptcy you first should attend credit counseling. They can help you see other options you may have besides immediately going to bankruptcy. Credit counselors have other ways to help you get out of debt but they may not fit your situation. This is why it is important to talk with them before going straight to bankruptcy.

    http://www.freshstartsolutions.com.au/bankruptcy-melbourne/

    ReplyDelete

  5. I read over your blog, and i found it inquisitive, you may find
    My Blog
    interesting. My blog is just about my day to day life, as a park ranger. So please
    Click Here To Read My Blog

    ReplyDelete

  6. I read over your blog, and i found it inquisitive, you may find
    My Blog
    interesting. My blog is just about my day to day life, as a park ranger. So please
    Click Here To Read My Blog

    ReplyDelete
  7. Nice blog. I will keep reading. Please take the time to visit my blog about FARMAKER costruisce

    ReplyDelete
  8. thanks friends for the content that you create, I really like the man badi once.
    by alat bantu sex.

    ReplyDelete
  9. What an awesome article about bankruptcy! It is a big help to everyone. If you are struggling with your personal and business debts you need to undergo for a consultation from the experts. http://goo.gl/39Sk8A have a great help for everyone in finding ways to overcome debts before going straight to bankruptcy.

    ReplyDelete
  10. Awesome Sharing about chapter 11, Really helpful data. Documenting Bankruptcy truly end your Painful stretch and pick up into Fresh Start Solution in your life. When you have settled on the choice it's a great opportunity to document for liquidation you first ought to go to credit directing. They can offer you some assistance with seeing different choices you might have other than promptly going to chapter 11. Credit advocates have different approaches to offer you some assistance with getting out of obligation yet they may not fit your circumstance. kirkland law firm

    ReplyDelete
  11. When matters of finance is concerned whether it is on a small or a large scale, everyone is more likely to take the easy way out as opposed to going the longer route because the issue often takes a huge toll on our mental strength. Hence, filing for bankruptcy is usually the more popular option which victims think will help end their misery. However, if we intend to make a comeback in the same market, we should think far ahead of the consequences of owning the title of a bankrupt and how to avoid it to our maximum capability.

    ReplyDelete
  12. The word bankruptcy for many sounds negative and bad for the business. The trust is hard to earned. The lesson here is that you cannot move on when you still has credit. To start again with fresh ideas with your business with out any credit is hard to achieve but can be possible when you take responsibility with your every actions. | http://www.goldbachlaw.com/long-beach/

    ReplyDelete