Business Debt: Assessing The Need to File For Bankruptcy

Whether in using up credit lines or applying for bank loans, most businesses often incur debts as part of their operations. Not all companies, however, have to capacity to fulfill their obligations to their creditors.

This is the reality and sadly, many businesses file for bankruptcy as a means to redress their debts. Although bankruptcy can always be considered, it needs a lot of thought and effort on the part of the borrower to chip away financial obligations little by little.

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First, there is always a distinction among different kinds of debts. Some debts are held at much better esteem than others. That said, businesses should always reassess their financial standing with special focus on their credit standing vis-a-vis business performance.

For example, if current debt contributes to improved operations and therefore brings increased income, then filing for bankruptcy can be considered “premature” since the business is still earning from the debt incurred. Bankruptcy should be filed during hopeless cases, i.e., when debt has eliminated the income potential of the company.

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Although filing for bankruptcy may offer many advantages such as wiping out certain debts, it can also mean, depending on the contract, returning properties to the creditor. This rule is applicable to “secured debts” or loans such as car loans and mortgages, wherein personal property have been put up as collateral for unpaid loans.

Before filing for bankruptcy, financial obligations must be addressed in a strategic way. There are many options for restructuring debt or paying it off slowly. Companies that mediate for debt solutions between creditor and borrower could also be tapped.  

Brennan & Clark is a collection agency that offers customized receivables support solutions to businesses. Follow this Twitter account to learn more about the company.