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bankruptcy the final recourse is on the rise among small businesses throughout americas main streets 12

Small Businesses

Bankruptcy, the final recourse, is on the rise among small businesses throughout America's Main Streets.

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Michael Chen

April 20, 2024 - 03:00 am

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Rising Subchapter V Bankruptcy Filings Among Small Businesses

The utilization of Subchapter V bankruptcy filings, favored by most small businesses today, has surpassed last year's levels, as reported by the American Bankruptcy Institute.

Simplified Chapter 11 for Small Companies

Chapter 11 of the U.S. Bankruptcy Code underwent revisions in 2019, aiming to streamline and reduce costs for small companies seeking debt reorganization.

Caution Against Bankruptcy as the Sole Solution

Despite the accessibility and benefits of Subchapter V and other bankruptcy options, it's essential to recognize that bankruptcy may not be the optimal strategy for every struggling business.

Increased Small Business Bankruptcies

The prevalence of small business bankruptcies is on the rise, with Subchapter V filings exceeding the previous year's numbers. According to the American Bankruptcy Institute, there were 1,659 Subchapter V filings through October, compared to 1,553 for the entire preceding year.

Importance of Timing in Bankruptcy Declarations

Declaring bankruptcy shouldn't be delayed until the business is on the brink of closure or facing asset repossession. Seeking professional guidance early on is crucial for exploring all available options and determining the appropriate timing for bankruptcy proceedings.

Consulting a Bankruptcy Attorney

Engaging with a bankruptcy attorney is a crucial first step for small business owners navigating financial distress. A seasoned attorney can assess the situation and recommend the most suitable bankruptcy type based on various factors.

Exploring Alternatives Before Bankruptcy

Before resorting to bankruptcy, businesses should exhaust all alternative options, such as refinancing, stock issuance, seeking assistance from friends and family, diversifying products/services, or considering mergers or business sales.

Caution Against Short-Term Funding Solutions

While facing financial challenges, businesses should exercise caution regarding short-term funding options, such as merchant cash advances. Relying on high-cost capital solutions can exacerbate financial difficulties, especially if the business is already in decline.

Navigating a Challenging Credit Environment

Access to capital for small businesses has dwindled amidst an economic downturn and aggressive Federal Reserve rate hikes. Many small business owners express concerns about accessing capital and are cautious about taking on additional debt in the current interest rate environment.

Avoiding Personal Financial Ruin

Maximizing credit cards or taking on unsustainable debt can jeopardize personal finances, potentially leading to personal bankruptcy. Business owners should prioritize financial sustainability and avoid actions that could result in long-term financial repercussions.