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Should I file bankruptcy?

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Wednesday, April 01, 2009

Q: My business has hit bottom and I don't see any way out. I'm $20,000 in debt and afraid of losing my house and what little bit of money I have left. I've been told that bankruptcy can give me a clean start. Should I file?

A: Twenty thousand dollars is probably not worth filing over when you consider that a bankruptcy can follow you for the rest of your life. It may only show up on your credit history for seven or 10 years, but take a look at a credit application. It doesn't ask if you filed bankruptcy in the last 10 years. It asks, "Have you ever filed for protection under bankruptcy?" Obviously, the decision to file depends on your personal situation.

However, in many cases you can resolve the problems with your creditors without going through the courts. Before you take what may seem like the easy way out, try to work out a payment plan with your creditors based on you ability to pay, regardless of how much or how little it is each month. Most creditors know that if you file bankruptcy they will likely get nothing -- but it they work with you they may at least get their money (even if it is over a longer period of time). If you were in debt $200,000 I might be giving different advice, and I don't mean to suggest that bankruptcy shouldn't be considered. But for the sake of $20,000 you might be making a big mistake. There are many accountants, business consultants and attorneys who can help get your creditors to work with you.

Another source to consider for assistance is the Consumer Credit Counseling Service. This nonprofit group is listed in your telephone directory. They might not be able to help your corporation out, but as for your personal debt, they are very highly thought of and creditors listen to them when they go to bat for you.

Caution: Avoid professionals who think the best thing about bankruptcy is how they can fatten their bank accounts with fees from people with financial problems. Bankruptcy is an absolute last resort and not a quick fix to get rid of creditors for the sake of a few thousand dollars.

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Comments 4

Janet OFerrell 9/10/2009 12:00:00 AM
We have A Vending Repair service, Been in bussiness over 13 years. Which Steve is the business, He repaires, I do paper work. Starting in May he is having medical issues, @ Knee surgs, Now facing knee replacement. He had had 3 backs surgs since1989. His medical prem. are 1600.00 a month, Not counting mine. We have through nace.He can't work, I can't do the work he does, We are a very small Business. We have no savings, Very little income. He is trying to do little jobs that his body will let him do. We have even tried to get dissabillity , No results. Any suggestions, Should we go belly up. Help Thanks Janet OFerrell
Gene Fairbrother 9/14/2009 12:00:00 AM
Hello Janet,

Hard for me to answer your question without more financial information. Due to the confidential nature of your question and type of information I would need I suggest you give me a call at ShopTalk (800-232-6273) so that we can discuss the specifics of your situation.

Thank you
Gene Fairbrother
NASE ShopTalk
Robert Frye 10/8/2009 12:00:00 AM
My brother and I are both Master Plumbers and have been in business for 3 years. We are in a financial slump with more debts than income. Our personal status is suffering because we can't take any pay from business. We have the potential for a great amount of business coming our way soon due to a sewage project in our community. Because we are local, people have already told us we will have their business. Our problem is that we have no money to buy supplies because we owe to our suppliers and there is the potential that we may need to hire extra people again with no money to pay them. We did get a grant from NASE 2 years ago which we used to buy much needed computer equipment and software. Can we apply for one again? Can you recommend any grant sources or funding sources for us. Also, can you recommend any credit counseling services that we may use to consolidate our debts or at least get some of the interest rates reduced to a manageable payment.

Thank you.

Robert A. Frye, Owner
Frye Bros Plumbing.
Gene Fairbrother 10/8/2009 12:00:00 AM

Hello Robert,

I don’t have the information on the NASE grant program and specifics on qualifications so I suggest you contact member services at 1-800-649-6273 and they can direct you.

As for the other issues in your question, you are in a similar situation as many other businesses and the key for you is to have the right credit line in place for just these situations. It is very common to need advance money for contracted work and having a credit line enables you to buy the supplies, labor and other expenses that enable you to survive between contracts.

In your situation the best financial source is to set-up a line of credit that you can draw against to meet ongoing bills and payoff when you receive payments on the contract. You can start by talking with your bank and if you have a letter of intent on the contract or something solid that you will get the contract, your bank (or another lender) may use that as collateral to secure a line of credit.

Another option is ... again if you have a solid commitment for a contract ... that if you go to your suppliers they might advance you an additional credit line for supplies against the contract, even if you have to pay them a premium of 5% or 10% over their normal pricing.

For the time being, you need to try and use your future business commitments to convince your bank and suppliers that you are going to be able to pay them off. Example ... your suppliers don’t want to loose what you already owe them so if you can convince them that you have commitments for money coming in, they may go along with you to be in a better position to get the money they are owed.

As for credit counseling and debt consolidation ... there really is nothing I know of that you can go to for your business debts. Credit counseling is more directed to personal finances. As for debt consolidation, again you are looking towards your bank or a local lender and that will depend on how you can show that you have future business on the books.

Work on the above items and if they don’t produce results give us a shout back and let’s see what a next step might be.

Gene Fairbrother