BY SUZZANNE UHLAND

Some important alternatives to deal with bankruptcy

Some important alternatives to deal with bankruptcy

In our dynamic world, companies must be prepared for multiple financial challenges and market circumstances, like insolvency or bankruptcy. These concepts must be understood in the best way for organizations, because if they are having operational or monetary issues, they may be facing one of these situations.

It is important to know, that bankruptcy can be assumed by different means, and it could be caused not only by high debt payments but also for elevated operational costs. In other words, if some organization is having troubles with its financial commitments, the possible solution can be the restructuration of its credit obligation or the reorganization of its operational activities.

Some important alternatives to deal with bankruptcy

There are some possible scenarios for organizations to surpass a bankruptcy scenario, but before we see them, it is important to understand in a few words what bankruptcy is.

Related: 9 Signs You Need To Think About Restructuring by Suzzanne Uhland

BankruptcyThis term can be understood as the incapability for a specific business to pay its financial agreements. In other words, bankruptcy is basically the inability that a company has for responding to its obligations, including the creditors for their debts, taking the organization into a legal process for its liquidation, restructuration, sell, among other alternatives.

Some important alternatives to deal with bankruptcy

Knowing this, then we can show some possible alternatives that a particular business has if it must face a bankruptcy or insolvency situation.

Credit restructuringThis is probably the best alternative, as long as the company with financial issues be disciplined in the accomplishment of the payment agreement. Put differently, a debt restructuration is an excellent alternative if the organization has the commitment to pay and fulfill the credit plan, reducing the debt, and expanding the payment terms.

In addition, under a credit restructuration, organizations can achieve more liquidity, benefiting their operational actions and increasing the cash flow to support the correct functioning of the organization.

Some important alternatives to deal with bankruptcy

Creditors negotiationUnder this alternative, creditors can receive a portion of their money if some business has payment problems. Through this option, creditors can avoid losing all their capital if a particular organization declares itself in bankruptcy.

This option can involve the acquisition by creditors for some part of the business in troubles, so it can be financed and supported by them, making that the company solves its problems. Put differently, through a negotiation, creditors can be associated with the debtor, letting the business to be successful again.

Some important alternatives to deal with bankruptcy

For a successful negotiation, the debtor must accept the creditors’ conditions, because it will be assuming multiple risks, not only to avoid losing its money but also for the commercial interests it could have. In addition, through this alternative, debtors can win vital time to reorganize their finances, through the possible cash it could receive.

Do nothingAnother alternative given by the financial institutions under the law supervision is taking no action about debts and liquidate the organization. In other words, this figure makes companies to be declared in bankruptcy and liquidated, avoiding possible penal actions against the business’ owner in the future.

Some important alternatives to deal with bankruptcy

Through this figure, if the organization has no properties or assets, creditors should not take legal actions, due to the reduced possibilities they have to recover their money. This alternative is the best solution for those organizations that do not expect earnings or other incomes in the future, avoiding possible legal problems for the non-payment of their financial agreements.

Some important alternatives to deal with bankruptcy

Credit consolidationThis is a very used and important figure for those organizations with multiple debts or credit agreements. Under the consolidation, they can unify in a single payment obligation all their debts. A credit consolidation gives to companies the possibility to pay only one interest rate for a unique debt.

Commonly, if one business has multiple credit obligations with different institutions, it can make a single loan with one financial firm, to pay all multiple monetary commitments it could have, letting only one payment with a unique interest rate. Through this option, organizations can restructure their economic obligations, reaching more liquidity for their operational activities.

Some important alternatives to deal with bankruptcy

Better money managingThis option does not involve monetary institutions, but the financial area of the company. Through this alternative, organizations must become aware of their expenses and incomes, so they can make a better plan for managing their monetary resources. In other words, it is an alternative to reduce the gap between what the business spends and what it receives.

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Some important alternatives to deal with bankruptcy

For the application of this option, companies must see the detail of their expenses, so they can determine what is necessary and what does not. This not only can reduce costs, but also can optimize the resources of the organization.

In this article, we explained the principal financial alternatives that companies have to deal with a possible bankruptcy. Besides these options, there are important legal aspects to consider, depending on the country in which the organization is located. It is important to say, that in this dynamic world, with a very active global market, businesses must know and consider all these options.