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Business Bankruptcies Rise By 26%: Why?

December 18, 2017 by  
Filed under Money/Business, Weekly Columns

(Akiit.comBy the end of the year 2016, nearly 38,000 businesses had filed for bankruptcies, a jump from 30,000 the year before. It’s almost accepted that a large proportion of companies will not make it and have to wind up their business through the courts. Of course, bankruptcy isn’t the end of the world but it isn’t a picnic either. If it’s avoidable, the majority of owners would find a way out rather than go through the hassle. This begs the question: why are they filing for Chapter 7s and 11s? And, why are the numbers going up and not going down?

Here are a few reasons for the current culture.

Think Debts Will Get Cleared

In the past, the idea of going bankrupt was one that filled firms with dread. Nowadays, businessmen and women are willing to take the plunge because it is a means to an end. Take Chapter 7 as an example. In some cases, unsecured debts get wiped off and the company in debt don’t have to pay back the money. So, things such as a bank loan or a peer-to-peer agreement may get tossed by the courts. As a result, the money owed is less. Of course, not all debts are clearable and arrears such as student loans stay forever.

Stops Creditors

If a business has no money, there aren’t too many ways it can take care of its commitments. Still, that doesn’t stop creditors from hounding the firm and asking for its money back. Going to the courts is an option if you need to get aggressive loaners off your back, but it isn’t foolproof. The trick is to understand the difference between a bankruptcy dismissed vs discharged as they are not the same thing. Dismissed means debtors can take legal action and resume collection, whereas a discharge means they will have to stop. But, you have to stick to the agreed payment plan.

Not Their Business

Filing for bankruptcy has a plethora of side-effects which are supposed to make companies think twice. However, owners are familiar with the legal system and understand how to find a loophole. One of the most common is to start a company but keep its assets in a trusted partner or family member’s name. Then, should the business go bust, there is nothing to repay the creditors with apart from the minor assets. Sadly, it happens more often than people like to imagine.

Last Resort

It is worth noting that not everyone tries to play the system. In a lot of cases, business owners do whatever they can to stay afloat but can’t keep up with their debts. When this happens, there is only one last resort to get out of a hole. Yes, it may impact the owners’ credit for the rest of their life and they may never get a loan again. It will probably tarnish their reputation across the industry too. But, if they continued down the same path, it would get much worse. Unfortunately, some people take risks and they don’t pay off.

Usually, bankruptcies are a mixture of bad luck, bad business and loopholes.

Staff Writer; Donald Short

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