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Alternatives to business bankruptcy

On Behalf of | Sep 4, 2020 | Bankruptcy

Countless factors can lead a business to experience financial difficulties. From the increased cost of materials to an expensive workforce to other economic factors beyond their control, business owners can witness the slow decline of their profitability. While the Bankruptcy Code offers strong options, filing for bankruptcy might not always be the best alternative.

There are numerous alternatives that might work better for the goals of an organization’s stakeholders. Here are two options for bankruptcy alternatives that might be attractive to business owners.

  • Out-of-court workouts: The term workout is commonly used for the process whereby a debtor attempts to negotiate a resolution with the creditors outside of a court proceeding. The terms of the workout can take nearly any form that satisfies both parties. In these situations, unfortunately, there are often numerous creditors. The business debtor must come up with a solution that satisfies all creditors, or the entire deal might fall through.
  • Assignment for benefit of creditors: A general assignment for benefit of creditors is often used as an alternative to Chapter 7 bankruptcy. Both processes center around liquidation, but while Chapter 7 follows federal laws, assignment laws vary from state to state. The assignment is overseen by state courts. An independent assignee is selected and will act as a fiduciary to the creditors of the business – similar to a bankruptcy trustee.

It is important to work with an experienced bankruptcy attorney even if you don’t ultimately choose bankruptcy for the solution to your financial troubles. A bankruptcy attorney can thoroughly examine your situation and provide information regarding your best alternatives.