What you must know before filing bankruptcy
for your business
When a company is in dire straits, often a company
bankruptcy seems enticing. Your debt will disappear,
and, if the company has filed under Chapter 11 bankruptcy,
the “fresh start” offered by the reorganization
is hard to pass up.
Good Reasons Why Company Bankruptcy Not Always Best
Solution
But filing a company bankruptcy isn’t always
the best answer. For some companies, it could be the
wrong answer, while for others, there might be better
options. Here are some reasons filing company bankruptcy
isn’t always the best choice.
1. You could lose much of the control over your company.
Many executives believe the bankruptcy laws allow them
to control their company's activities during a Chapter
11 company bankruptcy. But this is misleading. Bankruptcy
experts say business owners must understand that other
individuals will oversee and direct their decisions
during a company bankruptcy. Some of these people include
debtors, shareholders, and the court trustees.
2. Company bankruptcy is expensive. Depending on the
size of your debt, it might be more expensive to file
bankruptcy than to continue to run your business and
try to save it. If you choose to file company bankruptcy,
you’ll have to hire good counsel, and often other
professionals who will charge a hefty fee for their
services. The cost of filing bankruptcy often surprises
business owners so consider these costs before you
choose company bankruptcy as your best alternative.
3. Company bankruptcy can take more time than you
expect. This process isn’t a quick. You don’t
file bankruptcy, see a quick turnaround of your fortune,
complete the bankruptcy and return to business as usual.
Depending on your jurisdiction, court may only hold
hearings once a month. Sometimes, the court may delay
these hearings that are essential to the day-to-day
running of your business. This will slow down the whole
course of the company bankruptcy. If you choose to
file a company bankruptcy, understand that this process
involves have a series of “sit down and wait” moments
for you.
4. Your employees might flee during the bankruptcy
process. Even if the company bankruptcy filing is a
Chapter 11, or reorganization, many employees might
mistakenly believe the company is in such dire straits
as their job is in danger. Even if you reassure your
employees, you are sure to lose a few or more as people
seek more stable employment elsewhere. During this
already difficult time, you’ll have to hire more
employees, or make do with fewer people if hiring new
employees is not possible. If you do hire more people,
consider the cost of hiring, training and “breaking
in” new workers.
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