Bankrupting Your Business

How to avoid business bankruptcy. Read this even if you've given up all hope.

When a company is in dire straits, often a company bankruptcy seems enticing. Your debt will disappear, and, if the company has filed under Chapter 11 bankruptcy, the “fresh start” offered by the reorganization is hard to pass up.

Good Reasons Why Company Bankruptcy Not Always Best Solution

But filing a company bankruptcy isn’t always the best answer. For some companies, it could be the wrong answer, while for others, there might be better options. Here are some reasons filing company bankruptcy isn’t always the best choice.

1. You could lose much of the control over your company. Many executives believe the bankruptcy laws allow them to control their company's activities during a Chapter 11 company bankruptcy. But this is misleading. Bankruptcy experts say business owners must understand that other individuals will oversee and direct their decisions during a company bankruptcy. Some of these people include debtors, shareholders, and the court trustees.

2. Company bankruptcy is expensive. Depending on the size of your debt, it might be more expensive to file bankruptcy than to continue to run your business and try to save it. If you choose to file company bankruptcy, you’ll have to hire good counsel, and often other professionals who will charge a hefty fee for their services. The cost of filing bankruptcy often surprises business owners so consider these costs before you choose company bankruptcy as your best alternative.

3. Company bankruptcy can take more time than you expect. This process isn’t a quick. You don’t file bankruptcy, see a quick turnaround of your fortune, complete the bankruptcy and return to business as usual. Depending on your jurisdiction, court may only hold hearings once a month. Sometimes, the court may delay these hearings that are essential to the day-to-day running of your business. This will slow down the whole course of the company bankruptcy. If you choose to file a company bankruptcy, understand that this process involves have a series of “sit down and wait” moments for you.

4. Your employees might flee during the bankruptcy process. Even if the company bankruptcy filing is a Chapter 11, or reorganization, many employees might mistakenly believe the company is in such dire straits as their job is in danger. Even if you reassure your employees, you are sure to lose a few or more as people seek more stable employment elsewhere. During this already difficult time, you’ll have to hire more employees, or make do with fewer people if hiring new employees is not possible. If you do hire more people, consider the cost of hiring, training and “breaking in” new workers.

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