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The Most Common Causes of Small Business Bankruptcy

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small business bankruptcyThere are some alarming — make that terrifying — small business bankruptcy statistics floating around the web that claim that the vast majority of small businesses don’t make it to their first birthday party. Thankfully, this isn’t the case. However, it’s not as if the truth is inspiring, either: just over 50 percent of small businesses fail within the first four years.

Naturally, a small amount of this failure is the result of tragic events like severe illness or death. But a far more sizable proportion of small business bankruptcy cases are triggered by the following:

4 Essential Questions to Ask a Prospective Bankruptcy Attorney

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bankruptcy attorneyMany experienced and reputable bankruptcy attorneys offer a complimentary initial consultation, which is smart and sensible for two reasons.

The first reason is that it enables a prospective bankruptcy attorney to learn about the basics of your current financial situation (i.e. not drilling down into details), so that he or she can get a solid sense of whether entering into a relationship is in your best interest. 

The second reason — and just as important — is that it gives you an opportunity to ask questions, so that you can determine if a prospective bankruptcy attorney is someone you should consider hiring.

Filing for Bankruptcy: Who Will Know, and Who Might Find Out?

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filing for bankruptcyDespite the fact that bankruptcy is a legal protection and not a moral judgement, most people who contemplate a bankruptcy filing are understandably anxious about “who’s going to know.”

The first thing to note, is that a bankruptcy is not (remotely) on the same level as a criminal conviction — especially for a felony or other serious crime — which can have significant negative consequences financially, vocationally and even socially or domestically.

What’s more, bankruptcy filings are hardly rare occurrences. Each year, about 800,000 individuals and businesses file for bankruptcy. And while the matter is obviously processed through the court system, the difference between bankruptcy proceedings and criminal proceedings (or even civil proceedings) is categorical.

Filing for Chapter 7 Bankruptcy: What You Can Expect

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chapter 7 bankruptcyFor many people, the most daunting and frightening thing about filing for chapter 7 bankruptcy is not driven by what they know about the process, but rather about what they do not know. That is, they do not know what to expect — and so they fear and dread the worst.

To alleviate this anxiety, here is a general overview of what you can expect if you move ahead with a chapter 7 filing:

Pre-Bankruptcy Credit Counseling Course

Before you officially file with the court, you must complete a pre-bankruptcy credit counseling course. This course is delivered by various providers around the country, which are approved by the Department of Justice (or at the state level in Alabama and North Carolina, respectively) The course can also be taken online. Enrollment fees vary, but are typically below $50 (and some online courses are less than $20).

How Chapter 7 Bankruptcy Works for Debtors and Creditors

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chapter 7 bankruptcyOne of the most misunderstood topics in the financial world is how chapter 7 bankruptcy works for debtors and creditors. Unfortunately, this misunderstanding is not minor (like one of those passionate debates about whether the 1927 New York Yankees were statistically the best baseball team of all time, etc.). On the contrary, confusion around how chapter 7 bankruptcy impacts debtors and creditors is costly and stressful. 

How Bankruptcy Works for Debtors

Filing for chapter 7 bankruptcy (a.k.a. “liquidation bankruptcy”) will essentially wipe out most debts that were incurred prior to the filing (exceptions include child support obligations, court-ordered restitution, etc.). All non-exempt property, such as savings that are not part of a registered retirement vehicle, will be transferred to the court-appointed bankruptcy trustee, who undertakes a structured and transparent liquidation process. Proceeds are then distributed to creditors based on a pre-set amount (e.g. $0.50 for every $1 owed, etc.).