When a company is in dire straits, often a business 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. But it is not all it's cracked up to be.
Good Reasons Why Business Bankruptcy Not Always Best Solution
But doing a filing 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 why it 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 bankruptcy. But this is misleading. Bankruptcy experts say business owners must understand that other individuals will oversee and direct their decisions during a business bankruptcy. Some of these people include debtors, shareholders, and the court trustees.
2. Business bankruptcy is expensive. Depending on the size of your debt, it might be more expensive to file than to continue to run your business and try to save it. If you choose to file business bankruptcy, you'll have to hire good counsel, and often other professionals who will charge a hefty fee for their services. These costs often surprise business owners so consider them before you decide to go down this path.
3. Business bankruptcy can take more time than you expect. This process isn't a quick fix. 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 process. If you choose to file, understand that there will be numerous "sit down and wait" moments for you.
4. Your employees might flee during the process. Even if the you are filing a Chapter 11, or reorganization bankruptcy, 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.
Before you decide to file, make sure you know all your options. If Chapter 11 still looks like a good choice, do your homework. Find out about the filing process and know what to expect. Also make sure you get a competent bankruptcy lawyer to represent you and your company. The future of your business depends on it.
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