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Declaring business bankruptcy: basic overview

There are various types of business bankruptcy a company can declare, depending on the structure of a company, and the depth of the debt.

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business bankruptcy

Deciding whether or not to declare business bankruptcy

Having to decide whether or not to declare bankruptcy is a hard decision for a business owner. Starting a business requires a substantial investment of time, money and resources to secure all the parts needed to run successfully – but even after crossing these things off of the list, nothing is guaranteed.

If you’ve tried all you can but your business is struggling to stay afloat, it may be time to consider your options and file for bankruptcy.

Chapter 7 bankruptcy

Chapter 7 bankruptcy is typically designated for individuals only, however since sole proprietors manage their business as an individual, they can claim this option as well. Chapter 7 is more extreme than other forms of business bankruptcy in that an appointed trustee liquidates the entire business and portions it out to creditors.
This option can provide relief for business owners that are overwhelmed by debt and can’t come up with a reasonable way to pay it all off, however on the opposite side of this, filing Chapter 7 usually means the business doesn’t have a future. Therefore business owners will need to give serious thought before filing, and determine if they are okay with letting the business go.

Chapter 11 bankruptcy

If you feel there’s a way that you can turn your business around, Chapter 11 helps secure the future of the business through reorganization. The reorganization is done under an appointed trustee, and the company devises a plan for how it will pay back creditors. Once this plan is made, it is presented to the creditors, who will vote on whether they will or will not accept these terms.

If the creditors vote in favor and the court finds the plan reasonable, it will be enacted and the business will have an extended amount of time to make creditor payments. While this gives businesses some breathing room, this process takes a lot of work and could take several months to a year to enact.

Chapter 13 bankruptcy

Chapter 13 bankruptcy is typically reserved for individuals and sole proprietors, and like Chapter 11, uses reorganization to pay down debts. The applicant will file with the bankruptcy court and provide a thorough plan on how they plan to repay their debts. The court will provide a final decision on this plan based on the amount the filer makes each year, the property that person owns, and how much debt is in their name.

One disadvantage this could cause is that the court may come back and insist that you pay higher than your proposed amount based on the salary you make; but this option fares better for sole proprietaries in that any personal assets remain in their possession, rather than being liquidated as they would be if the business filed for Chapter 7 bankruptcy.

Minimizing the impact of a business bankruptcy

The decision to file for bankruptcy isn’t easy, but by working with an attorney to decide on your best option and develop a solid repayment strategy, the process is less tedious. No matter if you’re walking away from your business for good, or restructuring in order to better pay off your debts, it helps to get these discussions going and come face to face with the realities of your business.

Destiny Bennett is a journalist who has earned double communications' degrees in Journalism and Public Relations, as well as a certification in Business from The University of Texas at Austin. She has written stories for AustinWoman Magazine as well as various University of Texas publications and enjoys the art of telling a story. Her interests include finance, technology, social media...and watching HGTV religiously.

Business Finance

7 ways spending habits have changed since COVID-19

(FINANCE) How are spending and saving habits changing for Americans during the pandemic?

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Wallet open with $5 bill out, reflecting spending habits

Regardless of whether you’ve lost your job or kept it during the pandemic, you have undoubtedly been affected financially in some way over the past 8 months. For those who have been furloughed or laid off, it’s more obvious. If you’ve kept your job, you might be operating in a limited capacity, experiencing setbacks, or have a decreased client base. Of course, some of us are luckier than others, but if you’re not Jeff Bezos or Elon Musk (who have seemed to profit endlessly during COVID), chances are your bank statement looks a little different than you thought it would.

So how do these changes affect how we’re spending this year? Here are 7 ways Americans have changed their spending habits since March.

Out of work, using up savings

For those who are out of work and require more to live on than the negligible unemployment amount (especially after the extra $600 in COVID relief expired), resorting to savings is a means of survival. I’m sure no one imagined the “rainy day” they were saving for would be the economic repercussions of a global pandemic, but here we are.

Slashing expenses, saving more

We all arguably have less to spend money on these days. Going out to eat and drink? Travel? Shows and events? Not so much. It’s possible our wallets might be feeling a bit flush (especially if you’re still employed). As a result, many Americans are putting this new extra cash into their savings. Re-fluffing your financial cushions is a smart move, no doubt about it.

Putting life on hold

Did you want to move to New York City last spring before all hell broke loose? Did you want to buy a house or go back to school? You’re not alone. With all the financial insecurity that COVID-19 has brought on, it’s no wonder why many Americans are putting their dreams on hold.

Paying off debts

Similar to stock-piling cash for saving, many Americans are taking this time to pay off debts they have, weather that be a mortgage, students loans or something else. Smart move, I must say.

Looking to buy a home

Have you saved so much during the pandemic that you actually have enough to make a down payment on a house? Good for you!

It’s also important to note here that this trend also applies to those who participated in the mass flights from major cities to the ‘burbs – why live in a tiny, cramped apartment during a pandemic when you could buy a spacious home 30 miles away?

‘Comfort shopping’

Ain’t nothing wrong with a little retail therapy. If you’re using your end-of-the-month surplus on fun items for you, your home or others, I totally get it. Chase that serotonin rush – times are hard out here!

All that aside, as a consumer, I find market trends and marketing techniques during COVID so interesting. Absolutely no shade if you end up buying that $80 face cream because #selfcare (I’ve been there), but I have a fun time dissecting the ways in which digital marketers are extorting the current moment for financial gain. Think about it the next time you’re about to buy something you 100% would not have in a pandemic-less world.

Donating more than ever

On the other side of the spectrum, many Americans who have a little extra to spend right now are helping out their communities and other funds by donating to them. Whether it be mutual aid funds that provide meals to members of the community who need it right now, or to national funds that support disenfranchised or marginalized groups hit hardest by the pandemic, Americans are donating more than ever – especially with their stimulus checks!

It’s always interesting to see how large-scale events impact micro-economies, such as individual American households. The discrepancy between those who are working and those who are not plays a crucial role in dissecting spending habits but have less to do with the overall picture than one might think.

It will be interesting to see if COVID-induced spending habits will just be a fad for these dire times, or if they will continue after a vaccine is widely distributed. It seems only time will tell.

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Business Finance

The responsibility of billionaires in tough times

(BUSINESS FINANCE) How have billionaires continued to grow wealthy in times of economic turmoil? And how can they try to improve others’ situations?

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Billionaires counting money at desk in journal

The COVID-19 pandemic has made the divide between economic classes in the US more clear than ever before. From housing to healthcare, one’s ability to survive the impact of these times has been largely dictated by income.

Billionaires, however, sit in a league of their own. Mostly, they have been impacted by becoming much wealthier.

Jeff Bezos is an easy example of wealthier billionaires. He has added $74 billion to his already eye-popping net worth over the 8-month course of the pandemic.

Not just because of the shift away from shopping in-person, either – Watchdog group public Citizen has alleged that Amazon raised its prices as much as 900% on essential goods like face masks, hand sanitizer, toilet paper, and shelf stable food staples, though Amazon has denied this. And while the company regularly speaks out against price gouging, their efforts primarily fixate on third parties.

But as far as I know, only one person has intentionally lost their billionaire status recently. The “James Bond of Philanthropy,” Charles Feeney, just shuttered The Atlantic Foundation after 40 years of giving. In that time, he has donated away nearly his entire $8 billion fortune to charities around the globe.

Feeney, now 89, cofounded Tourists International with Robert Miller in 1960. The luxury retail chain, later known as Duty Free Shoppers, was fueled by cash from international Asian tourism and military service members.

Unbeknownst to his fellow shareholders, Feeney transferred his company assets in 1982 to start the Atlantic Foundation and for years the Atlantic Foundation’s grants were bestowed totally anonymously. His secret wasn’t discovered until court documents regarding a conflict with Miller, his former business partner, forced him to come forward in 1997.

Feeny is far from broke today, living in a San Francisco apartment (hey, they’re expensive) and holding onto a tidy $2 million.

Still, he has given away the greatest proportion of his wealth out of all American philanthropists. The Atlantic Foundation’s legacy remains a powerful acknowledgement of the responsibility that comes with holding a vast quantity of resources and capital.

After all, human brains struggle to really ‘get’ the sheer scale of a billion – let alone give it away.

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Business Finance

Nextdoor goes public for HOW MUCH?

(BUSINESS FINANCE) NextDoor’s latest valuation comes in at a whopping $4 billion to $5 billion, leaving many of us scratching, shaking, or nodding our heads in disbelief or agreement.

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Nextdoor app screens on green background with house in neighborhood.

How did they come up with this $4 billion to $5 billion valuation in Oct. 2020? Could this possibly be accurate for Nextdoor?

Considering the $2.1 billion valuation in Sept. 2019, that’s some Jack-and-the-Beanstalk growth right there. That’s not to say it isn’t worth that much, merely a thing that makes you go “hmmmm.” Has it really grown that much in just more than one year?

For those who aren’t familiar with NextDoor, it is a neighborhood app and website where neighbors communicate within a limited geographic area, bound by the neighborhood you live in and the surrounding neighborhoods.

This is the go-to app to reunite lost and found pets with their families, ask community questions, or even organize community events. It’s also where people complain about dog poop, warn others of coyote activity in the area or break-ins, or, increasingly during the pandemic quarantining, simply say hello and try to make a connection to the people they see walking down the street.

This aspect of the platform meets NextDoor’s stated vision of connecting neighbors, getting to know each other online in ways that will ideally lead to real life interactions. They see themselves as a community builder in this regard, and to some extent, they certainly are. I joined NextDoor to keep track of lost and found animals in my area. I appreciate that neighbors have also reached out to help each other, with gardening tips, “What’s this bug” type questions, offering rides to vote, free yoga lessons, and ways to haze a juvenile coyote to train it to be fearful of humans and not get too close.

I appreciate all of this.

NextDoor is also the online version of Mrs. Kravitz, the perennial nosy neighbor. The platform amplifies these voices of petty venting, grouchy grumbling, and paranoid postulating. People really can be ridiculous, and NextDoor can be a real laugh riot at times. A thread happening on my own NextDoor thread as I write this is pretty awesome: “A drone flew over my house in the middle of the night. Is it legal to shoot it down with my BB gun?”

A lot of people also ask if anyone else heard fireworks/gunshots/police sirens in the middle of the night, usually followed by a robust commentary on said loud noises. Unaffiliated Facebook and Twitter accounts exist only to highlight the more unusual or titter-worthy posts from real NextDoor posts. The most well-known of these is the Best of NextDoor (on Facebook and Twitter). The Best of NextDoor reposts screenshots from actual NextDoor posts, such as these:

Okay, you get the picture. The petty is strong in this one. NextDoor also has had to face the fact that the open platform has also seen issues surrounding racism. Some neighborhood threads became rife with posts of seeing a “suspicious man” walking through the neighborhood. The problem was that often, no suspicious behavior was reported, only a description of the person’s race. There have been calls, even a petition, for anti-racism training requirements for all NextDoor’s volunteer neighborhood leads (moderators).

Like many of the big dogs in modern day social networking apps, NextDoor grew quickly from its launch in 2010 and took on a life of its own. Often called the “anti-Facebook,” NextDoor blurs the line between online interaction and building a real-life community among neighbors. As with all communities, online or otherwise, it brings out the helpful, petty, social, cranky, generous, and sometimes awful side of people.

A community service and a sh*tshow, all wrapped into one, that’s what to expect. With 10 million users in 11 countries, according to DMR, and growing, NextDoor surely has momentum and potential. Could it really be worth the $5 billion valuation? It remains to be seen.

Whether the $4 billion or $5 billion valuation will pan out for their IPO, it will be interesting to watch NextDoor’s next steps, including if they even end up going public.

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