BY SUZZANNE UHLAND

The Advantages and Disadvantages of Filing for Bankruptcy

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The Advantages and Disadvantages of Filing for Bankruptcy

Some people believe that in any given situation there will always be pros and cons. It happens the same with bankruptcy. To some companies declaring bankruptcy may affect their financial future, reputation, and image. Also, it may become harder to get a credit again and secure a loan. Nevertheless, for some other company owners, declaring bankruptcy may provide relief when debts are critical and it becomes unsustainable to respond for the payroll and suppliers.

The Advantages and Disadvantages of Filing for Bankruptcy

It is true that bankruptcy has its pros and cons. Actually, any company should keep this pros and cons in mind when deciding to declare bankruptcy. Suzzanne Uhland knows how important it is for company owners or stakeholders to get legal assistance and advice from lawyers when choosing to declare bankruptcy.

Bankruptcy is not a condition to fear of, it can be seen as a decision that needs to be made consciously by every business owner. In the end, it can be a way to have a fresh start after a rough patch. Let’s not forget that even Donald Trump, Walt Disney, and Henry Ford declared bankruptcy at some point in their careers and still built some of the greatest empires of America.

The Advantages and Disadvantages of Filing for Bankruptcy

Related: Went Bankrupt, Now Worth Millions!

Disadvantages of Declaring Bankruptcy

Filing for bankruptcy can affect your business finances for many years. So it is important to balance whether or not you want to make this decision. Stakeholders and company owners shall carefully weigh the potential impact of this alternative before filing for bankruptcy.

If your company owns any type of property it may be taken and sold by the bankruptcy court to pay for its debts. This means that it is very probable for your company to lose everything that belongs to it.

The Advantages and Disadvantages of Filing for Bankruptcy

Besides, filing for bankruptcy will immediately mean that your company will be banned from getting a credit for the next 7 to 10 years. Most banks will automatically cancel your company’s ability to get a credit or a loan and will keep their doors closed for years until your company’s credit is clean again.

Another disadvantage of filing for bankruptcy is that your company won’t be able to get tax refunds from the state, federal or local governments. Sometimes, if your company already has tax debts, these debts won’t be covered and your company will need to pay them anyway.

The Advantages and Disadvantages of Filing for Bankruptcy

One of the worst disadvantages it a company files for bankruptcy is related to its inability of doing something else in the future to improve its status. Bankruptcy is the last resource and using it implies a complete loss of other options.

In terms of keeping a neat image, bankruptcy means your company was defeated and the owners, CEO and everyone involved in the financial crisis will need to face court and explain why the company had to file for bankruptcy. This may lead to public scandals and issues with the media.

The Advantages and Disadvantages of Filing for Bankruptcy

Advantages of Declaring BankruptcyDespite the disadvantages, declaring bankruptcy allows companies which lack funds to pay for their debts to solve their financial issues and start to rebuild their credit all over again. There are some important advantages that need to be considered prior filing for bankruptcy.

Filing for bankruptcy will immediately prevent creditors from collecting their debts. Creditors won’t be able to repossess your company’s property, such as equipment, facilities, land, and supplies. Creditors won’t be able to take action, sending a letter to you or even suing you.

The Advantages and Disadvantages of Filing for Bankruptcy

Sometimes, companies can file a bankruptcy exemption and keep their properties during the bankruptcy process. Sometimes, companies are even able to discharge their obligation to repay for any of their debts.

Some companies start to clean their credit rating after filing for bankruptcy since they are not able to get new debts or ask for loans anymore. Actually, the sooner a company files for bankruptcy, the faster it can start rebuilding its credit.

The Advantages and Disadvantages of Filing for Bankruptcy

When your company doesn’t have the needed money to pay for its debts, it can destroy its image by missing payments and respond to lawsuits. Bankruptcy may be a good way for it to explain why it couldn’t respond for the payroll or misses some suppliers’ payments. This alternative will help companies in the future if they want to get a loan.

Another advantage of filing for bankruptcy is that probably getting loans is what put your company in a critical situation in first place. So declaring bankruptcy seems to be a good alternative to pay for those credits and have a fresh start.

The Advantages and Disadvantages of Filing for Bankruptcy

Bankruptcy helps startups to face reality. This is a good way for an entrepreneur to know the challenges they may be facing ahead. This way, they will have the chance to know their market and possibilities and learn new ways to invest their capital. Entrepreneurs such as Henry Ford, Milton Hershey, Abraham Lincoln and Steve Jobs went bankrupt at some point in their career and amassed multibillionaire fortunes later in their lives.

Related: Three successful American cases overcoming bankruptcy