Bankruptcy

There May Be More Financially Distressed Small Business Owners Than You Think

By Bob Lawless

Last night, I caught the tail-end of a commercial for debt relief services aimed just at small business owners. Commercials for debt relief services are hardly unusual, especially in these financially troubled times. It was striking, however, to hear a commercial aimed only at struggling small-business owners.

To some, but this might seem like a small market. The data suggest otherwise. Elizabeth Warren and I once co-authored a paper finding that 1 in 7 bankruptcy filers identify themselves as self-employed at or near the time of bankruptcy. ("The Myth of the Disappearing Business Bankruptcy," California Law Review, 93:745-95 (2005)). At current filing rates, those numbers would imply over 200,000 bankruptcies each year have a relation to a small business. Of course, only a fraction of persons who experience financial distress end up filing bankruptcy. Although I am not aware of any data setting a precise number, for each person filing bankruptcy, there are several more in financial distress who do not. Financially distressed business owners could present a very large market indeed.

Those findings were from the 2001 wave of the Consumer Bankruptcy Project. In a chapter for a forthcoming book edited by co-blogger Katie Porter, I report that the 2007 wave reported a similar incidence of self-employment. Moreover, when the self-employed arrive in bankruptcy court, they arrive in worse financial condition than other bankruptcy filers. Even as compared to other bankruptcy filers, the self-employed have very high amounts of credit card and general unsecured debt, making them perfect targets for the debt relief firms.

If you found this post because you are considering debt-relief services, the Federal Trade Commission has a web page with some information you will want to see. Also, many state attorneys general have web sites that will provide more specific information for your state such as this one from Illinois Attorney General Lisa Madigan.

If you are looking for specific information about Corporate Turnaround, which is the company I saw advertising its services for small business owners, Google will lead you to all sorts of sites with testimonials about their services. To make a fully informed decision, remember that reasoning from testimonials is often a logical mistake known as hasty generalization. Information that is more difficult to find about Corporate Turnaround is that it appears to be a trade name for Commercial Credit Counseling Services, Inc. Here is a press release and cease-and-desist order from the Oregon Department of Consumer and Business Services directed at Commercial Credit Counseling Services, Inc., d/b/a Corporate Turnaround. Also, here is an appellate opinion from an Indiana state court in a lawsuit against Commercial Credit Counseling Services. Finally, this letter (at p. 10 of Attachment 1) to the Federal Trade Commission by forty state attorneys general discussing abuses in the debt relief industry mentions a settlement in a case called State of North Carolina v. Commercial Credit Counseling Services, Inc. d/b/a Corporate Turnaround, (Wake Cty. Sup. Ct. 06CV14672) although no details about the case are given.

Full post as published by Credit Slips on January 21, 2010 (boomark / email).