Sponsored by Suzzanne Uhland:
Bankruptcy should be avoided at all costs. That’s the conventional wisdom. Listen to any call from a creditor seeking to collect a debt and they’re likely to tell you people who fail to meet their financial obligations are the worst of the worst, the lowest of the low. They’ll probably use words like “loser” or “deadbeat.”
However, Forbes reveals that choosing not to pay creditors is a tactic that has been employed to great benefit by some wealthy people such as real estate mogul Donald Trump. Trump has filed for Chapter 11 bankruptcy protections no fewer than four times, leveraging the law to permit his businesses to essentially hit the reset button in terms of debts. There’s no reason ordinary business people shouldn’t also be able to start over.
Despite the shaming tactics sometimes employed in the collection industry, the truth is that walking away from debts sometimes represents far more than an option of last resort. Taking advantage of the fresh start afforded by bankruptcy laws can save companies and fuel the economy. If your enterprise is beginning to creak under the weight of obligations that are looking increasingly insurmountable, it’s worth considering whether bankruptcy could be the choice that keeps you moving forward.
Second Chances Drive Growth
The Motley Fool points out that bankruptcy may be greatly beneficial to the economy overall because it helps provide a cushion that enables entrepreneurs to take risks. The argument is that new ideas, practices, inventions, and all the other facets of innovation in the United States are made possible by the fact that failure isn’t necessarily the end of the world. The safety net afforded by the ability of a business or individual to walk away from the burden of debt and begin anew may be a big part of success in the modern economy.
Different Chapters for Different Situations
There are several kinds of bankruptcy that are named after the chapters that define them in the United States legal system. Three types are of interest to business owners — Chapter 11, Chapter 13, and Chapter 7. Determining which type would offer the best options for your situation would require you to assess the structure of your enterprise, the types and amounts of your business and possibly personal debts, and whether you intend to shutter your company or continue to operate after the bankruptcy. Fox Business elaborates on these bankruptcy types and the situations to which they apply:
Chapter 11
This well-known bankruptcy form is designed for companies that are expected to be able to restructure and rebound, so that they may continue to operate. It is mostly used by bigger enterprises. A company opting for Chapter 11 is granted four months as its waiting period in order to determine a course of action. A trustee is appointed by the court who will typically monitor the business and its operations very closely. The costs of filing Chapter 11 bankruptcy can be very high.
Chapter 13
People whose personal assets are tied directly into their businesses, such as sole proprietors, may find Chapter 13 to be their best bet. This option can help protect important personal property, such as your house, from being seized and liquidated to satisfy your debts. This can be very important because in business legal constructs such as sole proprietorship, there is no effective distinction between your assets and those of the business.
Chapter 7
When a company is pretty much done and there is no real chance of reorganizing the operation to keep it running, Chapter 7 is usually employed. In this bankruptcy type, a trustee is appointed to liquidate any business assets. The income from the liquidation is used to settle obligations that remain outstanding. Once the proceeds from selling off assets are used up, any leftover obligations are wiped away. The business is dissolved. If the assets don’t sell, you could have the opportunity to purchase them yourself for future endeavors. Chapter 7 is relatively inexpensive compared to other bankruptcy types and is considered to be one of the best choices for small businesses and sole proprietorships.
Don’t Try to Do It Alone
When contemplating filing for bankruptcy, it would be wise to contact an attorney with experience in bankruptcy and restructuring. The laws and processes involved in filing for bankruptcy protections can be incredibly complex, to which Suzzanne Uhland, a successful attorney in the field for over 20 years, could attest. Choosing an attorney who understands the legal hurdles and how to help you achieve the best possible results from restructuring could make an enormous difference as you go about the hard work of putting debts behind you and moving your business plans forward.
Bankruptcy is shedding the old stigmas as it becomes more valuable as a tool for companies and individuals to right the financial ships of their enterprises. Whether in business or in life, most people who hit a snag deserve the opportunity of a second chance to keep innovating and make things work. Bankruptcy isn’t for every company or every situation, but it’s an option worth exploring when debt threatens what you’ve built.
