When a person gets behind in paying debts, creditors begin to take action. And, when that happens, as I’ve warned many times in earlier bankruptcy blogs, it’s time for the debtor to take action, too. Telephone calls at home and at work from creditors could be just the beginning. Foreclosure proceedings may be started against a debtor’s home. Automobiles may be repossessed, along with other property. If creditors obtain a court order they may garnish wages, put liens on property, even seize bank account. Working with a bankruptcy attorney can help avert a good deal of the ensuing pain, provided steps are taken before matters become worse.
Despite some myths, most bankruptcies are very private affairs. The rare exceptions tend to involve well-known local business leaders or political figures. These unfortunately cases serve as a reminder of how business failures can sink even the most experienced of entrepreneurs.
Sometimes the first episode of a story is a Chapter 7 business bankruptcy. Then, sometimes, a personal bankruptcy filing will follow, especially if the business was involved in lawsuits and ends up losing in one or more of those. In the background there might be tax issues compounding the problem. With wages garnished to pay back taxes, it can be very difficult to catch up and begin to rebuild financially. Although, as I explained in my earlier blog, It’s The Business, Stupid!, corporations and LLC’s can file bankruptcy without the owner himself filing, the cumulative effect of many business debts and back taxes owed can resulted in personal bankruptcy even for some very once proud business personalities.
As a bankruptcy attorney in Indiana specializing in both small business bankruptcy and personal bankruptcy, I’m saddened but not surprised when I encounter, in my work with clients,r the sequence of events I just described Almost all small business owners’ personal and business finances are closely intertwined. In fact, a 2005 study published in the California Law Review reveals that more than 20% of personal bankruptcy filings are business-related. The bankruptcy system is designed to provide a safety net and a fresh start in situations like this. For a free capitalistic system to work, entrepreneurs need to be willing to take risks. The fact that there is a “last resort” in place when the best efforts fail serves as encouragement to do just that.