If your corporation or LLC is struggling with business debt, bankruptcy is one option. However, be sure to also consider non-bankruptcy options for your business which could allow you to keep your business or, at least, control the liquidation a little more than you can in bankruptcy.
Sometimes it is possible to work out your financial problems outside of the bankruptcy court. If you can’t pay all of your business creditors in full but they will benefit from agreeing to reduce the debt in exchange for receiving payment that might be greater than they would receive in a liquidation, creditors might be willing to negotiate with you.
How it works. Your attorney contacts all of the creditors, advises them of the situation and suggests a possible resolution. Under this option, you cannot force creditors to go along with the work out. They have to voluntarily agree to accept what you are offering or make an acceptable compromise. Unfortunately, this means that a difficult creditor could derail the entire process.
Pros. A work out is often the least costly alternative to bankruptcy that allows you to keep your business. You may also be able to work in a solution to any personal guaranty problems that could arise.
Many states have laws that serve as alternatives to business bankruptcies. Check the laws in your state (or check with an attorney familiar with these laws) to see what is available.
ABCs. Many states have provisions for assignments for the benefit of creditors or “ABCs.” These are generally useful when you have a buyer for the business who is willing to pay a significant amount but not enough to pay all unsecured creditors in full. Although the business is technically assigned to a third party to complete the process, since the buyer is in place at the time the ABC is filed, it may allow you to exercise some degree of control over how the business is liquidated. These proceedings usually take much less time than bankruptcy proceedings.