What to Do If Your Business Fails

Topics: Bankruptcy, Bankruptcy in the United States, Chapter 7, Title 11, United States Code Pages: 5 (2024 words) Published: May 8, 2007
According to the Small Business Administration, new businesses have a 34 percent chance of failing within two years and half are not operating in four years. 60 percent of businesses fail in six years (Scarborough and Zimmerer 12). I know people do not set out to fail this statistics show that it does happen. What is business failure? John Watson and Jim E. Everett authors of "Do Small Businesses Have High Failure Rates", say that experts tend not to agree what is the clear definition of business failure. Most of society believes that it is when a business files for a form of bankruptcy. However others believe that it can be "bankruptcy, merger, or acquisition. Still others argue that failure occurs when a firm does not meet responsibilities to stakeholders of the organization." The South Dakota State University Bulletin states students in the Entrepreneurial minor will "have the opportunity to increase their knowledge of skills needed to start, own, and/or operate a business." Part of owning a business is the chance of failure. In the syllabus for Entrepreneurship II one of the course objectives is to learn the challenges and rewards of entrepreneurship (Behrend). The class Entrepreneurship II needs to discuss what to do if a business fails because if a business does fail students need to know how to deal with the failure. Being prepared for failure is a practical part of starting a business. The statistics stated earlier show that business failure is very possible, and it is hard to see why learning to deal with business failure is not discussed in the Entrepreneurship II class. If the South Dakota State University wants students to be prepared for the real world, learning about business failure would be a big step. Also if we understood business failure students could learn from it and maybe in future be able to deal with it better. One very important topic in business failure is bankruptcy. Bankruptcy is the the choice that many people make to deal with the failure. Entrepreneurs who businesses fail often have no other choice but to declare bankruptcy under one of three provisions: Chapter 7, Chapter 11, and Chapter 13. Norman M. Scarborough and Thomas W. Zimmerer state, the most common type of bankruptcy is Chapter 7. This addresses liquidation and is available to both individual and business debtors. It aims at achieving a fair distribution to creditors of whatever non-exempt property the debtor has and to give the individual debtor a fresh start through the discharge in bankruptcy. Chapter 7 bankruptcy is also known as a "straight bankruptcy" or "liquidation bankruptcy" because the trustee gathers and sells your nonexempt assets and then distributes the proceeds to your creditors in accordance with the provisions of the bankruptcy code. Not every piece of property is subject to court attachment. However, some debts cannot be discharged in a bankruptcy proceeding (701). According to Scarborough and Zimmerer another option is Chapter 11 bankruptcy. This chapter addresses reorganization and is available for both individual and business debtors. The purpose of Chapter 11 is to rehabilitate a business as a going concern or reorganize an individual's finances. The Chapter 11 debtor is given a fresh start through the binding effect on all concerned of the order of confirmation of a reorganization plan. A bankrupt company might use Chapter 11 to reorganize its business and try to become profitable again. Management continues to run the day-to-day business operations but all significant business decisions must be approved by a bankruptcy court (701-702). The last type of bankruptcy discussed by Scarborough and Zimmerer is Chapter 13. This Chapter is used as a rehabilitation vehicle for an individual with regular income whose debts do not exceed specified amounts, typically used to budget some of the debtor's future earnings under a plan through which creditors are paid in whole or in part. Chapter 13...

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