How Will Bankruptcy Affect My Business?

business filing for chapter 11 bankruptcy

As an entrepreneur or business owner, keeping a business afloat can be challenging, especially during difficult economic times. You're thinking about how to keep your business from going under, by figuring out how to increase cash flow, or at least maintaining it at a healthy level for as long as you can. Learning how to pivot and adapt in the business world is vital, and companies, whether it be yours can definitely survive if you have a plan, but what do you do in case all efforts fail? Your business may be subject to bankruptcy as a last resort. 

What Is Bankruptcy? 

If you have outstanding debts you owe to your creditors, investors, or other constituents, but cannot pay them, filing for bankruptcy may be your only option. Bankruptcy offers an individual or business a chance for a fresh start by forgiving debts that simply cannot be paid while giving creditors a chance to obtain some measure of repayment based on the individual's or business' assets available for liquidation. Upon the successful completion of bankruptcy proceedings, the debtor is relieved of the debt obligations that were incurred prior to filing for bankruptcy. 

Businesses often file Chapter 11 bankruptcy, the goal of which is to reorganize, remain in business, and once again become profitable. Filing Chapter 11 bankruptcy allows a company to create plans for profitability, cut costs, and find new ways to increase revenue. 

When A Business Struggles Financially 

All businesses go through tough times or periods of financial hardship, but in the midst of this challenge, profitability needs to be maintained. Is your business making money? If it is not, your business is very likely struggling to pay the rent, struggling to keep employees, and perhaps barely making it through because of other expenses you have to take care of. No business owner wants to see their doors close or their customers leave in favor of their competitors. 

According to the U.S. Bureau of Labor Statistics, about 20% of small businesses fail by the end of their first year. By the end of their fifth year, 50% go under; and by the tenth year, that number rises to 80%. The burden often falls on the owner, or the leadership of the company, with survival rates like that, it’s easy to think that staying in business is difficult. But in fact, many common business problems and challenges are actually fixable. Many times, you’ll find you need to take a step back, take the time to understand the pain points you’re feeling, and rethink your marketing and sales strategy. 

Bankruptcy As A Last Resort 

Bankruptcy affects businesses big and small, from large corporate entities to your local mom and pop shops. Anyone who is struggling with money has likely considered bankruptcy to some degree, but most people consider it the absolute last resort. They exhaust all of their other options and when there’s nothing left to do, they throw in the towel and call it quits. 

The Consequences And Aftermath Of Bankruptcy 

Unfortunately, this approach can cause more harm than good. There are instances in which you should delay bankruptcy until you have attempted other means to resolve your financial crisis. Bankruptcy is a drastic step, and the decision to file for it should not be made lightly. You should think carefully before taking any action, if you are unsure of doing so, or if your situation is complicated, you should consult a bankruptcy attorney.

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