In 2019, more than 20,000 businesses filed for bankruptcy in the United States. This is a right granted under the U.S. Constitution which allows both consumers and businesses to reduce unbearable debt burdens through legal processes classified under titles. While bankruptcies always imply there are financial problems, the reasons why one company files might differ from the reasons of another company. If you have ever wondered “What happened?” after hearing about one of your favorite stores financially struggling, here are four reasons why many places file for bankruptcy.
1. Market Conditions
In an ever changing society, markets can always change, too. Sometimes, those changes are not for the best. When it comes to the market, financial success relies on both overall economic conditions as well as the specific market for whatever a business’s particular industry or niche is. Because of this, these conditions are leading reasons why many CEOs turn end up contacting a business bankruptcy lawyer Columbia MD.
Another big cause of bankruptcies in the business world is financing. If a business owner takes out a loan to get things off the ground and then the company does not do very well, there is a high possibility that banks will deny him or her for future loans. Once financing is no longer available, it can become difficult for many places to pay off debts, let alone survive.
3. Poor Decision Making
Running a business leaves some things to chance, but other things have nothing to do with the market or economy. It is also common for business owners to end up filing bankruptcy as a result of poor planning or bad decision making. A lack of education or inexperience can often lead to costly mistakes like erroneous spending or prioritizing.
4. Other Causes
Although most businesses end up filing for bankruptcy because of one of the first three reasons on this list, there are other factors that can also lead to unfavorable financial conditions. For example, if a company has a store is an unpopular location or faces a lawsuit, these situations can sometimes lead to bankruptcy. Emergency situations are another cause. For example, storms, floods and fires can also lead to significant financial loss.
When any kind of business files Chapter 11, it indicates the company is going through financial difficulties, but the reasons can vary. Whether the cause is something out of control like the market or it comes down to poor management, debt becomes unmanageable. For all them, however, bankruptcy ends up being the best solution.