Alternatives to Business Bankruptcy
When you’re overwhelmed with debt, it may be hard to see a way out. If you don’t think bankruptcy is right for you, there are a few alternative routes you can explore.
Mediation and negotiation
Professional mediators and negotiators are available to try to re-negotiate debts with your creditors, with the goal of lowering the amount you need to pay.
Having no assets
This is not so much a strategy as it is a set of circumstances in which business owners have no assets to take and your personal assets are limited. In this case, you might decide to surrender to the creditors. This may lead to a lawsuit, but once again, if you possess nothing of value, your creditors will not be able to take anything. The creditors may get a default judgment against you, which will burden you for at least 10 years or more if the judgment is renewed.
While this is a harsh outcome, this approach will buy you time. Keep in mind that the court will automatically add interest based on state or federal law for the time that has passed.
Allow them to take it
Another option is to admit you owe the debts and allow them to seize the property you offered as collateral, as well as any income you have coming in. This is a difficult decision, and you should speak with a bankruptcy attorney and a financial counselor to see whether this is the right approach for you.
Close the company and liquidate assets to pay off debts
You won’t have to worry about being pursued if you can sell the business assets to pay off the debts in full. However, companies are not always able to do this and continue operations.
Bankruptcy under Chapter 13
Chapter 13 bankruptcy is similar to Chapter 7 bankruptcy in that you are given a rigorous payment plan to follow for a period of time. If you keep up with the payments, you’ll be relieved of debt at the end of the payment plan.
The payment plan is designed to extract every last penny from the business while it remains in operation. You’ll have to deal with everyday cashflow challenges plus a trustee cash flow. If you fail to make your payments, you’ll be right back where you started.
Bankruptcy under Chapter 119
This is comparable to Chapter 13, but it is far more intricate, with complex rules. This option is probably out of reach unless you have $100,000 in cash to hire a bankruptcy attorney.