Passed into law on October 17, 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) dramatically changed the bankruptcy rules for consumers and small business.
The landmark bankruptcy law has made it more difficult for consumers and small businesses to file for bankruptcies. BAPCPA defines small businesses that possess less than $2 million in debt.
BAPCPA includes more reporting requirements and additional paperwork. The administrative changes to filing for bankruptcy consume more time that small business owners need to run and manage their businesses.
If a judge believes a company does not have a good chance of remaining solvent after reorganization under a Chapter 11 filing, he or she can move the case to a Chapter 7 bankruptcy. Moreover, sole proprietors might
have to file bankruptcies as individuals.
Bankruptcy now represents a less viable option for businesses that have accumulated substantial debt.
Small businesses need to implement one or more bankruptcy alternatives, such as participation in an out of court debt relief program managed by a debt settlement company.
Simple Bankruptcy Alternatives
You do not need a law degree to understand the simple bankruptcy alternatives that keep you in business, or at the very least, give you more time to get your business finances in order.
Do Not Call
The Fair Debt Collection Practices Act (FDCPA) limits when and where lenders and debt collection agencies can contact debtors. Small business owners should formally contact debt collectors to stop harassing and alternatives threatening phone calls.
Stopping debt collector phone calls does not mean you are in the financial clear. However, the strategy gives you more time to improve your financial status.
Debt collectors dislike one consumer behaviour more than any other consumer behaviour: Silence. If you remain in constant communication with lenders and debt collectors, you have a much better chance of negotiating a settlement for your small business debt.
Many lenders and debt collectors accept debt payment proposals that are less than the total amount of debt owed. Debt negotiations also buy you more time.
Work with a Credit Counselling Agency
You might not have the confidence to negotiate with a lender or debt collection agency on your own. A credit counselling agency employs highly trained professionals that not only possess professional negotiating skills, but also understand what makes lenders and debt collection companies tick.
You can also receive sound financial advice from a credit counselling agency to help you repay most, if not all of your debts, as well as enhance your small business finances.
Small business owners must avoid one bankruptcy alternative: Do nothing. Turning around a small business debt problem requires a disciplined approach to budgeting, invoicing, and purchasing. Although some customers avoid bankruptcy by doing nothing because they are considered “Judgment Proof," the same cannot be said for small businesses mired in considerable debt.
Changes in bankruptcy laws have made it more difficult for small businesses to seek bankruptcy relief. However, several bankruptcy alternatives exist to help you remain in business by improving your finances.