Many small business owners prefer to avoid filing business bankruptcy when faced with difficult times. Apart from the negative effect that a bankruptcy filing can have your credit score, our experts at ZocLaw.com highlight other important factors to take into consideration prior to filing a business bankruptcy.
Reputation: In the past businesses opted to avoid filing bankruptcy because of the negative stigma attached to it. However, larger companies such as General Motors, Chrysler, and United Airlines all successfully completed their highly-publicized Chapter 11 bankruptcy, the bad reputation associated with a of chapter 11 reorganization has been significantly reduced. Nonetheless, many debtors still prefer to avoid filing business bankruptcy as a result of obtaining a bad reputation.
Profitability parameter: Business owners seeking to reorganize their finance must be able to prove that the operation will generate a profit when their debts and obligations are restructured. While chapter11 reorganization may assist profitability by minimizing business expenses, the business owner confident that filing a Chapter 11 bankruptcy can return them to profitability.
Loss of privacy: Detailed documents, listing substantial financial information must be provided to the Court. Eventually, these documents become a public record, and are readily available to anyone who reviews the court files.
Limited control over business operations: Generally, business owners who enter into a business bankruptcy continue to perform those activities that are in the “ordinary course of business.” However, those activities that are not in the ordinary course of business must be approved by the Court.
Potential loss of shareholder control: If your business has shareholders, they may completely lose their position. However, in a well planned business bankruptcy, original shareholders of a corporation may be able to preserve the control of the old shareholders.
Cost: Chapter 11 is a very complicated process and is not cheap. For the vast majority of business owners a Chapter 11 reorganization is a once-in-a lifetime thing. The process should be strategically evaluated, planned and executed.
If you are a business owner struggling to stay afloat and would prefer to avoid filing bankruptcy, our debt relief lawyers can help you. Schedule your free consultation with one of our lawyers if you have been faced with a business lawsuit, defaulted on your business loan or simply cannot afford to pay back your creditors.