Why Business Owners Hate Bankruptcy

If you were to look back into the annals of legislative history and review the debates that occurred around the creation of our bankruptcy laws, you would discover a compassionate caring congress, creating an alternative path for small and large businesses to avoid disaster and to give them an alternative to self-destruction from excessive debt. A second chance. Simply stated, Congress opted for a second chance strategy for the business owners and individuals that could not make it work and were drowning in unaffordable debt, debt that was crushing their businesses and personal lives.

They stated clearly that they valued the second chance concept freeing both businesses and individuals from overpowering debt MORE than their desire to respect the contracts and commitments made by vendors, banks, and creditors of all kinds. Thus they created a compassionate law, the bankruptcy code to serve this end.

So, why do people find it so reprehensible and avoid it like the plague? I believe I understand why.

Many speak about their honor and believe that paying their debts is the honorable and moral thing to do. Thus, at great personal sacrifice they pay until they can’t pay any more and then what? File for bankruptcy because they are forced to? I don’t get it, but after thinking about it, I have come to a new conclusion, a better understanding of what the real barrier is. I believe it is, to them, an admission of failure.

A businessman’s ego is so wrapped up in his business that failure is not an option and bankruptcy is an admission that he couldn’t do it and needed the government to bail him out. No businessman wants to admit he is a failure and bankruptcy makes it impossible for him to avoid the conclusion that he has failed. So instead, he fights the inevitable and goes down with the ship.

Therefore, our alternative to bankruptcy–an effective workout–is frequently a better  way to go.