Your Business Has Debts: Should You Negotiate Or File Business Bankruptcy?
Let’s say that your business is having problems with creditors. So many problems that you start to wonder if maybe a business bankruptcy is right for you. Before you jump into that drastic step, there are things you should know about business bankruptcies.
What happens to your business when you file for bankruptcy is largely dependent on what kind of bankruptcy you file. However, as a general rule, a business does not just file for bankruptcy, and then walk away free of debt, the way that an individual might if they were to file for bankruptcy.
Yes, there are Chapter 11 options, which allow your business to reorganize. However, a Chapter 11 bankruptcy can take a long time, involve considerable cost, and can end up reorganizing your business to the point that you may not recognize it when the bankruptcy is all over.
In some cases—but not all—you will be allowed to continue to run your business during the bankruptcy, but with many of the daily decisions you’ve been used to making as an owner or boss, now you may need to get approval from the court for many of those decisions.
Negotiating With Your Creditors
There are options to a bankruptcy, the main one being simply negotiating with creditors. How much, and to what extent creditors will negotiate with your business largely depends on your business, the history of your relationship with each creditor, the kinds of creditors they are, and the age of the debt.
As a general rule, many smaller businesses will be more willing to negotiate with you. They are less likely to want to send their debt to collections, pay a collections company, or lose money selling the debt to a debt buyer.
Larger and more corporate creditors will be less likely to negotiate—although that doesn’t mean that they won’t, especially if you are a larger company, and they feel that you will, eventually, pay the debt (or the negotiated amount due).
Creditors that are unsecured, are also more likely to negotiate with you, as they know that if you file for bankruptcy, they will get little or nothing. Secured creditors are less likely to negotiate, assuming that the security has some value to it.
The older a debt gets, the more likely that it is that the creditor will negotiate with you–however, the other side of that is that the older the debt gets, the more likely it is to have ruined your or your business’ credit (or that the creditor may sue you for the debt).
Always make sure that older debt can still legally be collected. Many times collectors try to collect debts that are too old to still be valid.
Call the West Palm Beach business litigation attorneys at Pike & Lustig today if you or your business has debt problems, whether as a creditor or a debtor.