When Tennessee consumers file for personal bankruptcy, they do it in hopes of getting a fresh start in terms of their credit score. However, the results are not always so positive when business have to file for bankruptcy. Once a company files for business bankruptcy, it often means the end — even when the company has been around for decades.
Businesses are not afforded the same protections that personal bankruptcy provides consumers. Federal bankruptcy law makes it difficult for companies to restructure and emerge with a clean slate because the bankruptcy process is shortened. There is also very little protection when it comes to leases. Because of these reasons, many businesses are forced to liquidate assets after filing for commercial bankruptcy.
Because of this, companies will do whatever they can to avoid bankruptcy. In the end, the value of the company decreases, leaving less profit for stakeholders. So when a company’s sales start declining, it can easily turn into a lose-lose situation.
Due to stricter rules in place, commercial bankruptcies involving the retail space have decreased since 2005. Before then, retailers accounted for 14 percent of bankruptcies. Now, that number has dropped to nine percent.
Bankruptcy is a serious situation that should not be taken lightly. Before filing, business owners need to determine how they want to proceed with the company. Can they work things out with creditors? Is business still steady or is it declining? If a business owner wants to keep the company, that owner needs to find ways to make it profitable. Business bankruptcy may make things worse before it makes them better.
Source: CNBC, “Bankruptcy no friend to struggling U.S. retailers,” Nick Brown, Dec. 19, 2013