Why Would a California Business File for Bankruptcy?

  • Posted on: May 19 2023
  • By:

Starting a business can be very challenging and running a business can prove extremely stressful. This is especially true with the current state of the economy. Most businesses are faced with financial challenges. Unfortunately, these financial challenges can uproot the entire wellbeing of the business, rendering it unable to meet its debts and obligations.

When Should I File for Bankruptcy?

Filing for bankruptcy is one choice that businesses in this situation may make. Here are common situations in which bankruptcy may be a California business’s best option. 

  1. Significant Debt – One of the biggest reasons that a business will make the decision to file for bankruptcy is that it encounters significant debt, such as lease payments, unpaid loans, unpaid invoices, and unpaid taxes, that it is unable to repay. 
  1. Cash Flow Problems – Another issue that commonly leads to filing for bankruptcy is issues with cash flow. When a business lacks sufficient cash flow to operate properly, or it’s unable to secure additional financing, bankruptcy may be the only option. 
  1. Decreased Revenue – When a business experiences a long-term decline in revenue, it may have difficulty with generating enough income to pay its bills and obligations. Therefore, bankruptcy may be a good option in that it allows the business to eliminate debts and better its finances or restructure. 
  1. Creditors and Legal Actions – Another major factor that can lead a business to file for bankruptcy is if it’s facing legal action. A business that is up against multiple lawsuits or judgements can receive an automatic stay, temporarily stopping collection activities and related harassment, and allowing the business to regroup. 

How Can Filing Bankruptcy Impact a Business?

In addition to an automatic stay and restructuring of the business, there are many additional ways that filing for bankruptcy can have an impact on the business. 

  1. Changes to Business Operations – After filing for bankruptcy, a business may need to reevaluate its operations and make changes in order to become financially viable again. This means that the business may have to terminate leases, renegotiate contracts, restructure operations, sell assets, or more. 
  1. Credit and Reputation – While filing for bankruptcy can do a lot of wonderful things for a business, it can also cause some harm. Filing for bankruptcy can not only negatively impact a business’s credit rating, making it difficult to secure financing in the near future, but it can also have a huge impact on its reputation with both vendors and customers.
  1. Legal Proceedings – Filing for bankruptcy can also prove legally complex. There are a lot of requirements and processes that must be carried out and businesses must work closely with their creditors, trustees, and attorneys to ensure that they comply with everything.
  1. Business Viability – Although bankruptcy can provide a business with the opportunity to start anew, it doesn’t mean that the business will be viable in the long-run. If the underlying issues that led to the bankruptcy are not remedied or alleviated, the business may not ultimately survive anyway. 

The Law Offices of Brian L. Fox, APLC Help those Who Are Considering Filing for Bankruptcy

If your California business is struggling to survive and is considering filing for bankruptcy, it’s in your best interest to consult with a qualified California business attorney who can help. 

At the Law Offices of Brian L. Fox, APLC, we know how important it is to protect your business, its shareholders, and your interests. We will help you to figure out what would make the most sense for you and your company so that you may succeed. To learn more or to schedule a free consultation, contact us today!

Posted in: Business Law