Technically, you are either bankrupt or you are not. As a general rule of thumb, you are completely financially bankrupt if your current sustainable income plus any cash reserves will not pay all of your living expenses, pay interest on outstanding loans, and reduce some of your principal on those loans while paying on them for five years.
Depending on which state you live, the formula should not include any of your retirement moneys as cash reserves. Paying off debts for five years is chosen because five years is the maximum legal number of years a United States Bankruptcy Court allows an individual to work their way out of bankruptcy protection.
A problem has arisen in our culture because we don’t always understand the concept of being bankrupt, not in black and white terms. Different types of money management experts, including various debt settlement companies, offer help to debtors on the brink of bankruptcy.
One such money management writer recently offered five tips to small businesses on the verge of bankruptcy. Her advice was sound enough, but if a small company was really on the verge of bankruptcy, the advice is normally too little and too late. She advised the following:
- Face the truth about cash flow. Here, she advises the reader to consider putting more of their personal or borrowed money into the business. The suggestion to face the truth about cash flow is excellent, but the advice is insufficient you don’t have the personal funds or you can’t get a loan. If you are successful at either, and the business is not profitable, the funds may not be recovered, thus assuring bankruptcy.
- Maximize cash management. She suggests you negotiate payables for longer terms, speed up collection of receivables, and reduce your expenses, including converting full-time employees to part time. All reasonable advice if it can be done, but having owned successful small businesses throughout my career, it is easier said than done.
- Look objectively at hard and soft assets along with customer lists. She suggests selling assets you don’t need to competitors. This is good advice if you have not done it. Your competitors might not be so eager to help, but assets can be sold in other places.
- Identify competitors that might be interested in buying your company. She suggests selling your company to a competitor while it is still running. If a competitor is already established, why would they want to purchase their competitor’s business unless they need assets they can get at pennies on the dollar?
- Know what you are selling and have facts and figures ready. Again, the presumption is you might get top dollar from your competitor if you make a good sales pitch. See my answer to number 4.
The comments I have made about what was suggested by the writer were not intended to demonstrate the lack of experience the writer may or may not have with small business, but they were intended to raise serious questions about the understanding of bankruptcy and its effects on small business.
If your business is on the brink of bankruptcy, you will need a bankruptcy lawyer. A bankruptcy lawyer can explain bankruptcy laws and how they apply to your situation.
If you need relief from the stress of debt and you live in or around the metropolitan areas of Youngstown or Warren, Ohio, contact us at www.betterbankruptcy.com .We will help you find a bankruptcy attorney in your area who will answer your bankruptcy questions.
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