TLDR: For small businesses facing bankruptcy, the path to a fresh start isn’t cheap.
America entrepreneurs start new businesses each year but they don’t all become successes. Indeed, many startups fail but most entrepreneurs will strive to learn from the mistakes of past ventures and try again. Unfortunately it isn’t easy for many entrepreneurs to rebound from a failed business idea because the way the bankruptcy system in America is structured doesn’t always provide the “fresh start” it’s supposed to. For example, it can often cost small business owners hundreds of thousands of dollars to file for bankruptcy protection, especially when creditors are eager to cooperate. Further, many small business owners struggle just to afford the legal assistance typically needed during the Chapter 11 process. The Wall Street Journal continues, “Bankruptcy can be expensive for businesses of all sizes. The army of advisers winding down Lehman Brothers Holdings Inc. has billed more than $2.2 billion since the investment bank collapse in 2008, for example. The fees for defunct telecommunications company Nortel Networks are estimated at more than $1.3 billion. Even Detroit’s 17-month sprint through bankruptcy cost nearly $178 million. Yet, it’s often tougher for small businesses to afford the upfront retainer that attorneys demand, typically at least $25,000, on top of the standard $1,717 Chapter 11 filing fee. Utilities can ask bankrupt companies to set aside a deposit equal to a typical monthly bill, often another strain for small firms. Small businesses also tend to have less leverage when it comes to dealing with suppliers, who may be reconsidering whether to continue to deal with them after bankruptcy. If a small manufacturer sells products that consumers or other businesses can buy elsewhere, then creditors tend to have less incentive to make sure the small manufacturer will survive. By law, a federal bankruptcy judge approves the fees that a debtor pays to lawyers and other professionals. Thus, it’s rare to see small-business owners formally object, or challenge the fees in court…”
