Does Bankruptcy Make Sense For A Struggling Business?
Your small business is struggling with a lot of debt. Try as you might, the sales figures aren’t ramping up and you owe money to lots of suppliers and vendors.
A few poor investment strategies didn’t help along the way, leaving you in a dangerous situation. You’re running out of options, leading you towards the idea of bankruptcy.
Bankruptcy always sounds scary, but could it help a struggling business climb out of a bad situation? It’s something to consider, though this isn’t a decision to take lightly. Here are a few things to consider as you approach this decision.
Bankruptcy Can Help You Get Rid Of Debt
The core purpose of bankruptcy is to discharge many types of debt your business may possess. Work with a qualified law firm that understands all the bankruptcy rules to get the best outcomes.
You might not wipe out all of your debt, but you could get rid of many or at least reduce what you owe.
For some companies, this is enough to stay afloat and get a fresh start. At the very least it gives you time to figure things out. Filing for bankruptcy triggers a legal process in which nobody can collect things from your company. You get temporary relief from creditors while you work on a long-term solution.
You Can Protect Your Assets With Bankruptcy
Another key element of the bankruptcy process is the ability to protect essential business assets. You can flat-out stop creditors from seizing them, meaning you hold onto some key things to help run your business.
If you manage to get out of this situation, holding onto key assets will make it easier to keep things going and start again. This isn’t always possible without bankruptcy, so it’s something to consider.
Your Credit Rating Will Be Hit Hard
When a company files for bankruptcy, it essentially admits to being unable to control its debts. Credit agencies see this, and it gives them a massive black flag.
The good news is that your personal credit rating won’t be impacted, but if you try and borrow money or obtain business financing in the future, it will be pretty hard.
Think about what might need to be done following bankruptcy; you could require more investment in your business to keep it from sinking. The inability to access financing options makes this an almost impossible task as you’ll be reliant on crowdfunding or angel investors.
Positive Outcomes Aren’t Guaranteed
Sometimes, your assets are protected. This doesn’t mean all of a business’s assets are kept locked away – some will need to be liquidated. Likewise, some debts won’t evaporate, as bankruptcy is mainly about managing your debts and paying what you can.
Sadly, this often means it’s not enough to keep a business alive. You’ll avoid paying a lot of money, but you won’t be able to run your company as there’s simply not enough money to keep it going.
In conclusion, bankruptcy might make sense for a struggling business, but it depends on your situation. We are not financial or legal experts, so be sure to seek professional guidance before making a big decision like this. Our article simply serves as a starting point to help you get a grasp of what might happen in bankruptcy.
