Home Bankruptcy Options

Save your business at a fraction of the cost:
Is Chapter 11 Bankruptcy an Option?

I know how it feels...

• Debt load is sinking your business.
• Your own efforts to restructure trade debt and bank loans have failed.
• You need a solution fast. Finding it becomes your number one priority, and bankruptcy may seem a logical option.

In developing your Turnaround Strategies, bankruptcy is one of various options. Consider it, but do NOT leap into it without a turnaround expert's advice. REMEMBER -- your attorney is NOT a turnaround expert.

There are two basic types of business bankruptcy:

Chapter 7 Bankruptcy: This is the more drastic. Also called "liquidation bankruptcy," it's exactly that. Things having gone too far to reorganize, a trustee liquidates your company's assets and pays creditors in the proper order.

Chapter 11 Bankruptcy: Also called "rehabilitation bankruptcy" or "reorganization," with this there's still hope of emerging with a sound company. Assets and revenue are supervised by the court, but the company is not sold off.

In the national news lately, some pundits have given the impression that Chapter 11 isn't such a bad solution. Perhaps if your General Motors of Ford it may be a viable solution.

But they're not you.

Although Chapter 11 doesn't mean the end of your enterprise, it's hardly a solution to be welcomed. Debt terms are restructured, but debt is not canceled. At the other end, your company may be healthier, but you'll probably be hobbled with remaining obligations. Along the way, there are many other downside factors. You'll lose overall control. And the bankruptcy filing alone may reasonably scare off customers and suppliers.

Besides, administering Chapter 11 is even more complex than Chapter 7.

Nevertheless, your friendly local attorney is likely to recommend a Chapter 11 filing, maybe even saying it will solve all your problems. It will not. Or to state it more graphically, so does lopping off your head.

Why does an attorney encourage this fatal solution?

It could be because he stands to make a small fortune for complex but relatively mechanical work. Attorney fees can run $25,000 for even a very small business -- and many companies pay more like $100,000.

But does your lawyer tell you that only 1 in 10 companies survive a Chapter 11 survival strategy? The survivors are the ones that had tons of cash. Not your typical small business failure.

I don't mean to disparage all attorneys. But lawyers inherently have a different point of view.

A good lawyer is your friend, and you should have one on your team. If you find an attorney who states the cost up front, and suggests other options before bankruptcy, you can be more assured that he or she is looking out for your best interests.

In certain situations, however, Chapter 11 may be your only solution, particularly if secured creditors are seizing or foreclosing on assets. You may also need Chapter 11 to stop the IRS, if they intend to shut down your company or are freezing your bank accounts. Chapter 11 bankruptcy automatically gives you up to six years to repay any back taxes.

But rather than avoiding your creditors and the IRS through bankruptcy, let's try to avoid getting to that point in the first place.

Click to learn more about about Chapter 11 Alternatives.