When bankruptcy looms
An owner whose business may not make it explores his options.
Ron Swall, Lawrence, Kan.
We are a very small family landscaping business (sub S-corp). We were in debt about $12,000 before the season began. We're looking at borrowing up to $10,000 more to carry us until the work season picks. If we can't make it, is bankruptcy an option, and which option (Chapter 7, 11, 13?) offers us the best out? What are the important questions I need to ask when I consult with an attorney?
By Soo Youn, Fortune Small Business contributor
Dear Ron: You should turn to bankruptcy as a last resort. Most vendors who are owed money would prefer that you work out a structured payment plan rather than declare bankruptcy, since that typically means they won't get paid much, if anything, says Chicago business consultant Ken Gaebler.
Moreover, bankruptcy can be a permanent stain on your record, making it difficult to ever be in business again.
Bankruptcy experts and consumer advocates recommend that you explain your situation to everyone you owe money to and see if they can work with you to help pay down what you owe.
“This is not the time to give up. It's the time to get creative and think outside the box on ways you can get the money to reduce your debts,” Gaebler says. “Maybe a loyal customer is willing to loan you some money or take a partial interest in the business. Maybe you can offer discounts for pre-payments for the upcoming season.”
If you do opt for a bankruptcy filing, it’s hardly an easy out. Chapter 7 and Chapter 11 are business bankruptcies. Chapter 11 is complicated and complex and shouldn’t be considered unless you are convinced your business will survive, says bankruptcy lawyer and Southwestern Law School adjunct professor Ed Wolkowitz. Chapter 7 is liquidation, and is not a good option if any of your debts are guaranteed personally.
Chapter 13 is a personal bankruptcy declaration.
“You have very little control over what gets liquidated so it's a dangerous proposition," says Gaebler. "The main reason you formed your landscaping firm as a legal entity was probably to protect your personal assets, so Chapter 13 is not a very good choice for you."
A good place to start reading on Chapter 13 is Consumer Action’s personal bankruptcy online guide.
If, in the end, you do choose to meet with a bankruptcy lawyer, ask about pass-through liability, advises Wolkowitz.: “Certain types of debts, primarily tax debts, are pass-through debts, which means you cannot escape them.
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From Dino, Orlando, FL Are these figures correct? $12,000 in debt plus an additional $10,000 after borrowing more? There is no justification for alarm on the part of these business owners. Bankruptcy is far from an option here. Almost every business (if not all) carries some debt. In this case the debt they have is minuscule particularly for a seasonal business like landscaping. During the winter you don't make money. When the spring comes is where the money is made. I say hold out for a little longer and don't succumb to our fear and anxiety you're experiencing over this debt. In other words "MAN UP!!!!"
From Melbourne, FL Why would anyone listen to a business consultant giving legal advice about whether someone should file a bankruptcy? If the questioner follows his advice and chooses not to "give up" and later has assets seized or his wages garnished, he may regret following that advice. Some of the most important distinctions about the different types of bankruptcy and other options are not even provided. Most of the information a person would need in order to respond to the questioner is not given. Finally, given the fact that just about all small business related lending involves an additional personal guarantee by the business owner, a bankruptcy might be an excellent choice if the borrower is facing overwhelming debt. In fact, America's liberal bankruptcy laws were created for the specific policy purpose of promoting entrepreneurial risk taking and allowing people to move on if things don't work out.
From Kay, Berkeley, CA another great website for learning more about bankruptcy is http://www.nolo.com – for 37 years Nolo has been able to explain the law in an easy to understand format – they have the latest up to date info on business and personal bankruptcy laws as well as other legal issues.
From Paul South Florida Before the thoughts of bankruptcy enter the picture,look around your business and see what assets or merchandise is unneeded or excess that will bring in cash. Selling off your excess inventory brings in money to help stave off the bankruptcy step.
http://www.sellmyinventory.com
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I live in Florida but am from Kansas.
I am not suprised Ron's landscaping business is in debit. All the landscape companies taught all their Illegal Mexican employyes to do the work, now they have started their own business's and at a fraction of what Americans can do the work for. He will be out of business soon.
I know a guy in Overland park kansas,near lawarnce and he works for a large company that builds brick buildings, they no longer work in the state of Kansas, due to the Mexicans under bidding all American firms and using 3 times the manpower. I know guys in Tile lawing business,tree business,roofing business. They have all gone under after over 10 years in business because they can not compete with all the Illegal Mexicans in Kansas now.
That is what your article shouldbe about, because that is reality and what is happening there and I can put you in touch with these poeple.
But you like most pundunts refuse to tell the truth.