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A small business blog featuring tips to help entrepreneurs succeed in the small business world. Topics include family business, human resources, marketing, money, networking, operations, ownership, startup, taxes and technology.
When to Consider Bankruptcy as an Option
Truth is, most of us don’t want to EVER consider bankruptcy as an option to get out of debt looming over our heads, especially when it comes to our goal for a successful business. Filing bankruptcy, in the eyes of most, is like admitting defeat at our dreams, and no one wants to do that.
Unfortunately, however, there are often circumstances beyond our control, such as unexpected medical problems, which force us into a financial corner that, no matter how we try, we just can’t seem to get out of. If you’re in that corner, and haven’t consider bankruptcy as an option yet, maybe you should.
Consider the following to determine whether bankruptcy may be your only way out:
Map Out a Payment Timeline
Determine your personal average monthly income, and list your personal expenses (such as groceries, mortgage, etc.). Next, list your businesses monthly income and business expenses (utilities, supplies, payroll, etc.). Determine what you have left each month after expenses. No, list your debts, including monthly interest, and find a total.
How much of your remaining income can you afford to pay toward those debts each month? Will your payments make a dent in what you owe? If what you are able to pay won’t even get you on the other side of the accumulated interest each month (such as the minimum payment), then you’re in a hole that won’t likely fill itself in. And if your debt far exceeds your annual and personal income combined, as in you make $30,000 and the debt is over $1 million, bankruptcy is probably the only option.
Creditors Banging Down the Doors
Many creditors will be patient for a time – a very short time. But when they have had enough of your promises and excuses (because that’s the only thing you can do in such a situation), that patience will be gone all together.
Daily bothersome telephone calls and threatening letters are one thing, but when creditors literally come banging on your door or, worse, file a lawsuit, you’re headed for trouble. And when the lawsuits begin to pile up, that can really harm the reputation of your business. Potential consumers and clients won’t trust a company that has been in legal trouble. You may want to consider bankruptcy if your company is headed for court on a number of outstanding debts.
As a side note, as a legal assistant, I specialize in collections. There are regulations regarding what a debt collector can and cannot do regarding contacting you on your debt. If you feel harassed or even threatened by creditors, check out the Fair Debt Collection Practices Act and know your rights. Even if you are in serious financial trouble, that gives no one the right to threaten you and your family.
Examine Your Priorities
Are you more concerned with your reputation than putting food on the table? It’s a fair question. When it comes to a debt so overwhelming, you don’t want anyone to know about. Many people fear that it will make them seem irresponsible and untrustworthy, both professionally and personally. But the truth is, taking care of yourself, your family and your employees to the best of your ability is more important than the false pretenses that avoiding bankruptcy, when its your best option, portray.
Consult an Attorney
If any of the above circumstances describe your situation, then it would probably be in your best interest if you consult a bankruptcy attorney. He will be able to tell you for certain whether bankruptcy is the best option. In fact, he may be able to reveal other possibilities that you never considered. But it’s crucial that you get an attorney involved. The laws regarding bankruptcy are complicated and time consuming and changes in the last few years have established harder criteria to meet in order to qualify for filing bankruptcy.
Honestly, bankruptcy is not something I recommend, if it can be avoided. But sometimes it can’t be, and you may just have to face that reality.
• CNNMoney.com: Life After Bankruptcy
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