When Congress passed new, tougher laws regulating bankruptcies, few thought about the unintended consequences for small business.
In prior recessions, small businesses usually led the way out of the gloom. The conventional wisdom was that when bigger companies shrunk and laid off, the little guys benefited by getting a bigger labor pool. Plus, some of those laid off were the very ones who started their own small businesses.
Times have changed, it seems.
On top of tight credit and a slow economy, small businesses have been hit with the triple-whammy of tough bankruptcy laws that show little or new mercy for small companies that are trying to tough it out until times get better.
When the laws were passed in 2005, the point was to make it more difficult to file for personal bankruptcy. However, one of the effects was to subject small-shop proprietors to stricter requirement than those for bigger companies.
What’s worse: When bigger companies go under, it’s their small contractors who don’t get paid. So the little guy is getting it from both sides.
The result: Small businesses are going under at record rates, and few are coming back.
Some of the grim numbers:
- The average daily number of bankruptcy filings is about 350 — a 240% increase over the figure in 2006, when the new bankruptcy laws went into effect.
- Court records show that the number of bankruptcy filings in the first five months of this year hit 36,106, easily topping the 23,829 in the first five months of last year.
- The National Federation of Independent Business says its survey of small-business owners shows that 16% says it’s too difficult to get loans — the highest reading since 1982. Fewer loans translate into more bankruptcies.
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Tags: bankruptcy, credit, loans, National Federation of Independent Business
July 9th, 2009 at 11:07 am
I’m a little confused here, by the title one would believe these are actually “new bankruptcy laws”, but, in fact, you indicate the laws were passed in 2005. That would be right about the time that our ultra conservative government was in place vs. the current administration- which many people believe make it harder for business to operate. Just clarifying here…
July 9th, 2009 at 11:51 am
We are a small 40 employee company (28 years in business) who has had 3 bankruptcy filing by our clients within 6-8 month period. We are experiencing critical cash flow problems and loss of business. 2 of the major clients have been our clients for approximately 25 years.
We have sufficient assets, however I have found banks or financial instutions who want to lend or refinance our debt struture. We have Equity in Building/Land/Equipment.
There seems to be little respect for the small business owner who works harder/smarter/invests
his profits and supplies good solid jobs to the community.
What kind of assistance, direction do I have to survive?
July 9th, 2009 at 11:51 am
Thanks!
July 9th, 2009 at 2:25 pm
The 2005 changes to the Bankruptcy law were a protection for the banks and credit card companies and was designed to keep individuals and small businesses from discharging credit card debt in Bankruptcy. What a shame! The credit card companies are simply predators who encourage people to buy things they cannot afford and then charge outrageous interest and late charges to enrich themselves.
July 10th, 2009 at 1:52 pm
As a small business owner who has been fighting Bankruptcy, how are the laws going to effect me if I file on personnal credit card debt. but what to still opperate by business?
August 13th, 2009 at 5:02 pm
I agree with Annabel Seltzer about credit card companies but I would add banks and their outrageous fees for overdraft protection to the list. The banks have become the problem for many small businesses. E.g. for us, we had some cash, paid down a credit line, and they reduced the credit line to the amount we paid down too. Another case, we paid off a credit line and they eliminated it altogether. At the same time their telemarketers call us trying to get us to open a credit line. Whatever respect I had for banks has been largely eliminated by the bailouts and the way they are reducing credit all over the place.
September 18th, 2009 at 10:18 am
The current controlled liberial congress has no need for small business a couple of reasons, most small business know how to spend a dollar and make a profit, and manage the business. Most small businesses are not for government control and are not democrates. A fare days pay for a fare days work and small business does not need a union to tell them how to operate, All Chylser dealerships that did not contribute to the obamma campaige are now closed, GM stock holders lost all their money and the government ownes 60% and the union ownes 40% nothing against a GM vehicle, I just wont ever own another one, will go to Ford, our current government information is mostly lies and fraud and Chicago south side politics
October 8th, 2009 at 1:38 pm
Everyone with any knowledge clearly states that small business drives the economy, creates jobs, creates innovation and probably if anything is supposed to get the economy started again and out of recession. Thats the way its supposed to work. Unless the government starts to realize and wake up to the fact that thousands of small businesses are closing every week and tens of thousands of Americans are thrown out of work every week.
Because of these closings its going to get a lot worse before it gets better. We are between a rock and a hard place. we struggled to stay afloat for the past year and a half robbing peter to pay paul and vice versa keeping our employees working an recieving a pay check and health care. Now that things are turning around for the banks and finance companies we are being shut out and strangled. Somebody is doing something very wrong. There has to be a bailout for small business, the IRS has to loosen up and work with small business to keep them afloat. I wonder how many small businesses are being closed down by the IRS every day and how many workers are thrown out of jobs. The bush administration took billions of dollars away from the SBA, there is no sign of that money being restored. the SBA should be allowed to loan money directly to small business if the banks continue to freeze us out. Give small business a break and watch what we can do turn this economy around.