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Bankruptcy is an economic safety net that can be a beneficial tool for an individual or a business that's in debt. But, a panel of bankruptcy experts, claim that it's often too expensive for small businesses to file for bankruptcy. Thus, these experts, which includes lawyers from all over the U.S., urged members of a Senate Judiciary subcommittee "to change the rules to give small businesses a better shot at survival by filing for Chapter 11 protection."
Small Businesses Get the Short-End of the Stick
A lawyer from Washington, D.C. explained that while bankruptcy rules for large corporations who have complex financial agreements and expansive operations work well, they don't work as well for small businesses. He suggested that rules for small businesses should instead be similar to Chapter 13 bankruptcy, which allows some to keep property by being able to repay debt over several years. According to lawyers, it can often cost anywhere from $100,000 to $300,000 to file for bankruptcy protection, and if there's a creditor dispute, it can sometimes cost twice as much.
How Lawmakers Could Help
The panelists made a few suggestions for making bankruptcy easier for small businesses. One suggestion was cutting the amount of information a small business must file during a case. Also suggested was giving owners of small businesses access to a financial professional who could serve as a guide through problems. A more complicated suggestion was to allow small businesses who go through a bankruptcy to keep their businesses if they promise to pay the companies' past debts with future profits. It remains to be seen if lawmakers were persuaded to change how small businesses file for bankruptcy.