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Chapter 11 Bankruptcy Often Too Expensive For Small Business

By Jonathan Alper

Many small businesses are struggling in a bad economy, and often a business owner will ask me if bankruptcy will help them save their business. Most of these people are looking for a way to restructure debt and get some breathing room from their creditors so they can rebuild their operations. Bankruptcy law provides for restructuring a business through a Chapter 11 bankruptcy

 Chapter 11 bankruptcy procedures are designed for all businesses, from the small mom-and-pop up to large public corporations. Small business have to go through the same Chapter 11 procedures and hearings as do the largest companies like GM , Delta Airlines etc. Chapter 11 bankruptcy is complicated and very expensive compared to the consumer bankruptcy chapters 7 and 13.

Most small businesses already in financial trouble cannot afford to file Chapter 11. The initial legal retainer fee usually ranges from $20,000 and up. I recently read a good blog post on Scott Riddle?s Georgia Bankruptcy Law Blog  which explains in  detail why Chapter 11 bankruptcy is so expensive. Scott lists many of the Chapter 11 requirements and points out that, ?The items listed above are required in every Chapter 11 case, whether it is a single asset real estate entity or a large manufacturing company.?

I find that most small businesses which are losing money end up closing their business and starting over after the business owner files a personal bankruptcy to deal with his personal guarantees of business debt.

Full post as published by Florida Bankruptcy Law on February 18, 2011 (boomark / email).