There really can be life after bankruptcy

In case you didn't already know this, bankruptcy is not cheap.

“Bankruptcy is an expensive alternative and I would rather not spend the time and money if we can get there without filing,” said Joseph Peiffer, of Day, Rettig and Peiffer in Cedar Rapids.

“Many who need it cannot afford it,” added David Nadler of Rothschild & Nadler, also in Cedar Rapids. “It can cost from $1,000 to $3,000 to file.”

Bankruptcies overall in Iowa fell last year - consumer bankruptcies were down nearly 20 percent from 2010, while business bankruptcies declined almost 7 percent.

But that's not to say bankruptcy lawyers aren't still getting customers.

Bankruptcy lawyer Kevin Ahrenholz said that while his focus is primarily individuals, in the past five years there have been more businesses knocking on the door. These are primarily mom-and-pop companies and businesses with two to three shareholders.

Nadler pointed out some businesses have been personally guaranteed by the owner because they have not asked for or were not eligible for money from a bank to start the business. This gives them more options in the bankruptcy courts but also more personal liability in the business world.

A bankruptcy lawyer will help a company try to come up with a plan under Chapter 11 to reorganize the business and pay creditors a portion of the debt.

Creditors and the court must approve the plan. If they do not, the company can still be pushed into Chapter 7, which is straight liquidation of all assets and debt.

Chapter 11 is designated as business bankruptcy but small businesses that are personal investments also may be eligible for Chapter 13. Under Chapter 13, a plan must be approved by a judge, but the creditors may comment but do not have voting power.

CREDITOR VS. DEBTOR

“I have not personally seen a surge in commercial work,” said Jeff Taylor from Klinger Robinsons & Ford. “However, we do more work from the creditor side.”

“When you are working for the creditors, as opposed to the debtor,” Peiffer noted, “your goal is to maximize their payments.

“When working for the debtor, you are trying to keep them in business and pay as little to the creditors as possible. This can work out for both parties, since if they stay in business they will be able to pay current and future debts.”

Times have been busier for bankruptcy lawyers.

“We were much busier during the farm crisis of the '80s,” Taylor recalled. “Since farming was pretty near and dear to my heart, I did a lot of work for farmers asking for help.

“Some were family corporations, some sole proprietorships, and others individual husband-and-wife situations, which reorganized under chapter 11 or under Chapter12, which is specifically for family farmer or family fisherman bankruptcy.”

Peiffer added that he's been “extremely busy” since the downturn of 2005 “with farm and commercial bankruptcies. The fluctuation in grain and livestock prices have affected a lot of farmers and put some of our dairy farmers into bankruptcy.”

Peiffer said he spends considerable time with debt restructuring for businesses to avoid bankruptcy.

WHAT ARE THE CHOICES?

Alternatives to bankruptcy, according to Taylor, include out-of-court settlements and reduction of payments. Repayment can sometimes be achieved by selling property or borrowing on property or by locating a new investor.

“Another option may be selling the business as a going concern,” Peiffer said. “We tried this recently with an architectural firm, but we could not everyone, including creditors, to agree.”

Ahrenholz recommended considering recapitalization, possibly getting some or more shareholders involved, or downsizing the business. There is money out there and there are venture capitalists looking for good investments, he said, but a business may be in bad shape for any number of reasons - poor management, a bad business plan or the present economy is not conducive to this business thriving. So convincing investors may be difficult.

Some small businesses, as an alternative to bankruptcy, simply prefer to close their doors and let the business die a natural death.