Is Chapter 11 Bankruptcy Your Only Option?

May 14th, 2012

When small business owners start to fall behind, it’s sometimes hard to think clearly. The first thing to look at is the phrase “fall behind.” Every smart business owner seeks a balance between affordable payment terms and the best price. The more time the business has to pay for a product or service, the longer that business has to raise enough revenue to pay according to terms. So a business might have Net 90 days to pay a vendor back. When things get tight, making a phone call to ask for an extra week to make payment may not seem so long compared to the usual payment terms. After a while, it starts to feel like a friendship with certain creditors. When money gets tight, simply make a phone call and ask for more time. It can get to where the business owner makes a round of calls like these at the end of every month. Having to make these types of calls on a regular basis is a warning sign the business could be facing Chapter 11 bankruptcy in the near future.

It can be very difficult for a business owner to really look at the warning signs and do something about it. Some might look back to the first full year of economic downturn and point to the business bankruptcy statistics 2009. Compared to 2009, things are improving. But improving for whom? You might take comfort in knowing the economy has some bright spots. You might feel better with the possibility that things can improve in your industry. But the best economic outlook of 2014 can’t pay today’s bills. Instead of looking at the economy, it’s important to address the problems your business is facing right now. So you may have every reason to believe things will get better. But you have to keep your business healthy to reap the full benefits of a good economy. There can come a time when creditors will start saying no to extending payments. Credit lines can start getting cut and the collection process can begin. You may begin to receive collection calls that promise they want to work with you – as long as you give them what they want.

If you’ve fallen behind with creditors and you’re looking into filing bankruptcy, there’s some part of you that knows your business is in danger. Over 40,000 businesses close their doors every month. Yet as you start digging deeper into Chapter 11 statistics, you’ll see there are way less businesses who file chapter 11. Some choose not to because they have too many personal guarantees. If you’ve signed personal guarantees, even after a bankruptcy, you could still be held personally liable for paying those debts. Some business owners close their business to work for someone else. Many are shocked to find their personal guarantees they signed as business owners still stand. They are then forced to make payments to those creditors from their new jobs. Paying them back could take years. That’s why it’s important to address business debts with a professional as soon as possible.

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The Many Sides Of Corporate Bankruptcy

May 10th, 2012

Running a business can be a very solitary experience for many small business owners. In fact, if you own a small business, you could be all by yourself for hours a day. Even with a few employees, it might not be easy to talk to them about difficulties the business could be facing. You could be their sole source of income. Further, they may not be able to help you with your problem even if you took the time to share it with them. For example if you’ve fallen behind with creditors, your employees can’t negotiate with your creditors on your behalf. It’s doubtful they have the money you owe available to them to give you a loan. While telling them your problems could make you feel better in theory, it is doubtful things could improve from such conversations. You could be considering some kind of corporate bankruptcy but telling your employees could set them off in a panic.

You could surf online every day and fill your head with business bankruptcy statistics. But how other companies faced their debts may have little to do with how you face yours. A common response to problem debts is to juggle them. Some call it “robbing Peter to pay Paul.” This is where a business owner takes the money owed to one creditor and uses it to pay another. The creditor who gets paid might stop calling for money. But there is still an unpaid creditor. As revenues begin to drop, it can slowly start to leave multiple creditors going without pay. Once you have multiple creditors going without pay, you can start to run out of creditors to juggle. Even though making payments to some creditors bought time with the creditors that were paid, it could be making things worse with the unpaid creditors. It could force some to escalate their collection efforts to a lawsuit or to execute on an existing judgment. That’s when it’s important to seek professional guidance.

As many professionals in the industry will tell you, bankruptcy filing statistics don’t tell the whole story. Because for every business that files for bankruptcy, there are many that simply can’t afford to go through the process. There are also many that choose not to file and close their doors. Yet some of them have signed personal guarantees. Some advise against signing them. But for many small business owners who lack the collateral needed for a loan, a personal guarantee could be the only way to get the funding or credit needed to start, sustain or expand the business. But should the business run into rough times, those guarantees could become a danger to the survival of the business. Some business owners must make payments for personally guaranteed debts even if the business has been closed. Owning your own business can allow you a certain degree of autonomy. But it can also insulate you from receiving a frank assessment of the health of your business. Operating your business without outside feedback can keep you from seeing any dangerous patterns your business may be engaged in such as avoiding certain creditors and allowing a bad situation to get worse. An experienced professional has the experience to properly review your situation and make the appropriate recommendations for your business in regards to business bankruptcy.

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The Real Lesson Of Business Debt Consolidation

May 6th, 2012

There’s a certain amount of privacy some small business owners enjoy. They get that privacy by doing many different jobs themselves. That means they generate the majority of the revenues. They do most of their accounting except at tax time. When advertising and marketing need to be done, they’re the ones who try to figure out how to do it. They handle most of the jobs right down to cleaning and answering the phones. And for as long as their business is financially healthy, they can keep that privacy. But when an independent business owner falls into severe debt, every move they make can be up for scrutiny by their creditors. That’s when some may look into business debt consolidation. Many business owners look for a way to simply get past due debts condensed into one low monthly payment. But when you own a business, the debts can’t be treated the same way you might treat personal debts. For example, if you have pledged an asset to get a previous loan that you can no longer pay back, you could potentially lose that asset.

If you fall behind with a creditor where a major asset such as a home or company vehicle is pledged, that creditor could move to repossess that asset. The business foreclosure laws make sure that a certain protocol is followed by that creditor. This process gives you a certain amount of time to repay the amount owed. Failure to repay in the allotted amount of time could result in you losing the asset you have pledged. Each state has its own laws regarding business foreclosure. Speaking with a professional can give insight into your true exposure in regards to this specific asset. There are certainly further details to consider. Other creditors may be the primary lien holder and have first position on the asset. But once you have lost the asset, it may be of little importance which creditor gets the biggest piece of what you have lost. If you have lost your place of business or a key asset such as a trucking company’s trucks, this could be devastating to your ability to operate your business.

The stress at this point could be too much to bear. Many businesses in this position are swamped with collection calls. Each collector is just calling for their piece of the cash flow that remains. It can feel like there is no relief at any turn. At this point, it is hard to simply pretend that everything is fine with the business. Difficult conversations may need to be had with family, friends and creditors. This is when the privacy that owning your own business allows for could be gone. It is not just about the privacy. Some business owners point to their pride in owning their business and succeeding on their own. The conversations that await must include an honest assessment of where the business is headed. How much money is actually coming in the doors and how much money is spoken for before it’s even earned. The conversations may even begin with a professional who can review the financial situation of the business. They may determine that Chapter 11 business bankruptcy is an option you need to consider. Many business owners are told that they should file bankruptcy by bankruptcy attorneys, accountants, even friends and family. Yet there are businesses who have emerged from severe debts without filing bankruptcy. Many had professional help in their success. If you are facing such a situation, speaking with a professional can help ease the burden of carrying your problems alone. You can then consider which path is best for you and your business.

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Can American Businesses In Overwhelming Debt Survive Another Downgrade?

May 3rd, 2012

America’s national debt and the S & P downgrade has placed American businesses in great peril. Now is the time for all indebted American business owners to save and restructure.

America’s national debt as of April 2012 is $15.69 trillion, which effectively translates into a debt of $50,061 per US citizen and a debt of $138,255 per US taxpayer [1]. With the real rate of unemployment is well over 10%, the recession is still biting. The government does not want to tinker with fiscal policies because elections are around the corner. These bits and pieces may seem like routine business statistics, but may well land a sledgehammer blow to American businesses that are steeped in debt and reeling from the prolonged recession.

American businesses want the economy to get going, but the government has been lulled into slumber after the recent S & P downgrade, which first shocked and then pleasantly surprised. After the American sovereign rating was downgraded, economists expected that investors would get nervous and capital would take flight. But the economists were proven wrong. Investors and countries actually invested in US debt because the dollar is the world’s No 1 reserve currency. No country wants to pull out of US assets because such a move would ruin the global financial architecture. After investors reposed their confidence in the USA, the government went back to business as usual thinking all was well [2].This has left American businesses disappointed.

Now the time has come for all American businesses to realize that there is a problem at hand, which must be tackled head on. If the national debt keeps on piling up, and the economy keeps going at a sluggish pace, the next downgrade could create a new nightmare for American Businesses – some of whom are already struggling to stay open.

But what can American business owners do to help themselves? Some seem uncertain of how to move forward. According to Ben Bernanke, business owners delay investment and hiring decisions when the future is uncertain, like it is now [3].

For starters, a business owner must understand that these factors work out to a triple whammy. One, we have the recession and policy uncertainty pulling businesses down, two, businesses steeped in debt and hit by the recession are unable to repay debts, and three, many business owners will not expand or invest unless there is policy and economic clarity. They must know that bad debts and unemployment are rising and investment is falling in a dull, cloudy and murky economic mess.

American business is at a standstill now. Inventory, receivables and assets are pledged, personal guarantees are at risk, checks are bouncing, sales are low, employees are being let go, little money is coming in, lot of money is flowing out, financial pressure is mounting, and indicators point to things getting worse..

Therefore, every American business must first look in the mirror and then inward. They must realize that borrowing money to resolve old debt problems may not be the solution and that whether its for the government or Main Street USA, hiking the debt ceiling is mere cosmetics and does not address the real problem. [4].

The solution for many American Businesses is to bite the bullet and opt for debt consolidation or business restructuring. They must control spending, balance budgets, scrimp and save, and get back into shape on their own because there appears to be few options available to help them. If they don’t, their chances of survival could be at stake.

Sources:

  1. http://www.usdebtclock.org/
  2. http://business.time.com/2011/04/19/what-americas-debt-problem-means-for-the-global-economy/
  3. http://www.clevelandfed.org/research/Commentary/2011/2011-24.cfm
  4. http://www.youtube.com/watch?v=WBqowpKr9Cc

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Talking To Your Family And Friends About Chapter 11

May 1st, 2012

One of the overlooked issues with Chapter 11 revolves around the conversations that will probably need to take place with close family and friends. When a business owner falls behind with creditors, monthly spending frequently gets cut back while the business owner tries to catch up. Salary may be cut back or cut out altogether until further notice. More hours may need to be worked to try and raise revenues. Collection calls may start coming into the business and the house. Even if the phone ringer is turned off, collection letters can start arriving. If employees have to speak to collectors, most likely they can’t promise payments you can’t afford to make. They may have been given instructions to say as little as possible. The collector, on the other hand, is paid to gather as much information as possible in pursuit of collecting the debt. This can lead to some tense conversations between your employees and any collectors that may call looking for you and looking to get paid.

Things get even more complicated for a number of reasons. If you own a family business and you’re receiving collection calls, this can cause problems long after you’re done working for the day. If a family member is a guarantor or co-signed for a loan, those collection calls could cause legitimate concern. It could make it difficult to borrow more money from family and friends if they think you’re having a hard time paying back what you owe them already.

Once the financial problems have escalated enough, the business may be forced to go past looking at Chapter 11 and could now be forced to consider business Chapter 7 bankruptcy. This is also known as the liquidation bankruptcy. This type of bankruptcy is considered by many to be a last resort. It can also point to waiting too long to get the help needed to save the business. While some point to spreadsheets as signs of financial troubles, there is an emotional element present as well. For many business owners, talking about their debts is difficult. Some don’t know exactly how much money they owe their creditors. Once it became clear that many bills just could not be paid, some bills were put into desk drawers and boxes without ever being opened. There are some businesses that do not answer their phone to avoid collection calls, throw away or ignore all bills that come in through the mail and change the subject whenever the health of the business comes up in conversation with family and friends. For many, their rationale revolves around managing their stress and being realistic about what they can do right now to resolve their business debts.

If they can’t afford to make a payment, there is no point in knowing how much they owe. Because whatever the amount is, there is simply no way they can pay it at this time. They know that some could consider it irresponsible. But in their mind, they are the only person who can get their business out of debt. They know how much revenues are coming in the door. They know how much money they expect to arrive in the immediate future. To them, the numbers are clear cut. And all the collection calls in the world won’t change what they can do about their debts. Talking to family and friends about how bad the financial situation of the business is can only lead to fights as it may have in the past. While family and friends may have been a real source of moral support in tough times, now any details about the business could lead to fights. With all the stress that is waiting at the door each day, it just seems easier to say nothing and try to get through the day in the best way possible with the least amount of “friction.” But by putting things off, by leaving bills unopened, collection calls unreturned and important discussions left unsaid, this puts the business in the unfortunate position of being isolated without any true way of being helped.

When a business falls behind, it’s easy to look at debts as an inconvenience rather than a warning sign. The warning sign is that the existing and projected revenues are not enough to satisfy existing and future obligations and potential liabilities. If they move quickly enough on their problems, they may be able to stay in business and look to a firm that provides business debt consolidation. However, should they decide to keep all those around them in the dark, they could be facing the biggest crisis their business has ever faced alone and without any solid guidance or support.

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