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The Small Business Owner's Guide to Bankruptcy

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The Small Business Owner's Guide to Bankruptcy

Know Your Legal Rights, Recover from Mistakes and Start Over Successfully

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Should your small business file for bankruptcy? How does it work? Can you avoid it? Can you recover? It`s all here.

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Editorial Rating

7

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  • Applicable

Recommendation

If small business bankruptcy is on your mind, you may be experiencing a few sleepless nights. Rather than reaching for the sleeping pills, stay up with this clear, brief and sympathetic introduction to bankruptcy laws and how they function. The authors, attorneys Wes and Wendell Schollander, walk the small-business owner through a typical bankruptcy, pointing out the traps to avoid. You do not need to read it from cover to cover since most chapters stand alone. Although that results in some repetition, getAbstract recommends this book both to small business owners in a financial jam or those who are worried they might be, and to anyone who wants to understand bankruptcy basics without paying for a single billable hour of attorney time.

Summary

Are You in Trouble?

Small business owners tend to be optimistic, but look at your finances with a gimlet eye. If you suspect financial trouble, estimate your debt-to-income ratio. Compute your annual take-home pay (exclude taxes, insurance and retirement contributions). Add your debts (exclude student loans, taxes, and car or home loans). Divide the debt by the income. If the ratio is .15 or less, you are fine; if it is .16-.25, reduce your debt; more than .25 is serious debt; and .90 or higher signals a financial crisis. See a lawyer or credit counselor.

Even if things look bad, you may resist bankruptcy and seek other solutions. Cutting costs can help, but that requires an accurate budget. Some costs may be unavoidable, such as rent. Borrowing against your home to bail out your business is a big gamble; if things go wrong, you could lose your house and your business. Don’t touch your retirement plan. If you liquidate a pension plan, the money will be taxed and you are likely to get a lot less than you expected. If you borrow against the plan, you have to repay it, but such "payments to yourself" can change your apparent income in bankruptcy court and worsen your ...

About the Authors

Wendell Schollander, a graduate of the University of Pennsylvania and Duke University Law School, has practiced corporate and bankruptcy law for 30 years. Wes Schollander is a graduate of the University of North Carolina and Wake Forest University Law School. Both authors practice law in Winston-Salem, NC.

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