Bankruptcy is a scary word. Definition behind is that it is a legal procedure which involves a business that is not able to pay their outstanding debts. This might start simply that company is ignoring bills coming in and not having assets to pay them. Process starts with a debtor who files a petition on behalf of the creditors. Assets and liabilities are measured and some of the assets might be used to cover some of the debts.

If the business is not making profit, it is wise to understand it sooner than later. You should not be ashamed if your business failed and you have to make a bankruptcy, try to take it as a lesson to learn from our mistakes and do not make the same mistakes again.

Often in the case of company running out of assets they are not able to pay of their debts to all of the creditors. Often these companies will not get their remissions from anywhere. These are unfortunate situations which every company should be prepared for.

Every month more than 200 Finnish companies are listed to make bankruptcy for different reasons. It used to be a tough situation for many entrepreneurs and many of them felt ashamed. If the company has some assets and can pay off their debts there is no need for bankruptcy but matters can be settled trough settlement which normally lasts for five months. Making a bankruptcy is no longer a lifelong stamp that will follow you, contrariwise it is a sign that you have learned from it. If the company is not able to pay off their bills the creditors will propose the company for bankruptcy. If the company is not paying their legally obligated payments such as v.a.t or taxes which are foreclosure the company can be set to bankruptcy without the court’s decision.

There are two occasions why company fails to pay their debts. They are called inner reasons or outer reasons. Outer reason is a fact which is not depending on the company’s own decisions or money handling methods. This might be a cause of pandemic, depression or legal aspects. Depression will affect every business as it is affecting the power of money for consumers. Depression causes companies to act under pressure, which may include firing employees and layoffs. Inner reasons might be insufficient leadership skills or entrepreneurial skills. There might be a situation where company is selling their products too cheap and not being able to cover the manufacturers bills. Counting contracts which are not beneficial for the company. Personal problems like stress and working too much might cause the brain behind the operation to get a burnout, which might be a long process to recover.

Some small entrepreneurs might face financial difficulties for a long time. They might use their own assets to cover company’s poor money situation. Which causes even more stress and will drive them to make poor decisions. If the entrepreneur has personal warranties against company loans, they are personally responsible to pay them back.  Filing a bankruptcy is not against law if the entrepreneur has handled everything according to law. It will not affect on getting a new job or starting a new company. Only in the case the entrepreneur has not been acting according to law, it is a crime, which normally leads to prohibition for starting a new business from 2 years up to 7 years.

So do not be afraid of bankruptcy. It is a scary word, but after understanding the quiddity of it, is not so scary after all.

References:

Arola Janne. Y-Studio. Website. Written on 12.11.2019. Read on 16.4.2022. Link: https://y-studio.fi/yritys-muutoksessa/muutosten-hallinta/konkurssi/

Suomi.fi Website. Read on 16.4.2022. Link: https://www.suomi.fi/yritykselle/muutokset-ja-kriisitilanteet/yritystoiminnan-lopettaminen/opas/konkurssi

Tuovila, Alicia. Written on 15.11.2021 Website. Read on 16.4.2022 Link: https://www.investopedia.com/terms/b/bankruptcy.asp

Article picture: https://superiorjustice.com/tax-attorney-in-ontario-california/chapter-11-bankruptcy/