Many sectors of the economy have been hurt by the recent recession. One of the hardest hit sectors was the financial industry, which saw the fall of thousands of firms of all sizes because of overwhelming debt. When a small business in Texas, or a large one for that matter, has insufficient income or assets with which to operate and pay its debt, the decision to file for bankruptcy may make solid financial sense. This appears to be the scenario that led financial firm 401KExchange Inc. to file for Chapter 7 bankruptcy in late September.
The firm provided business development, market research and data, and a variety of other services related to 401(k) plans and other retirement plans. Founded in 1996, the company served mostly small and midsized corporate clients. The company received an additional round of funding from investors in May of this year, but the company never reported how much was received.
In its bankruptcy filing with the court, 401KExchange says that it has 1,000 to 5,000 creditors. Meanwhile, the company lists assets of from $500,000 to $1 million with approximate liabilities of $1 million to $10 million. The firm says it decided to file bankruptcy upon the request of a group of shareholders who jointly own more than half of the firm's stock.
By choosing to file a Chapter 7 bankruptcy, the company seeks to be able to liquidate its holdings to pay off creditors. While such sales may not fully cover the total outstanding debt, it will ensure that some creditors receive some compensation.
Filing for bankruptcy is not a move that business owners plan or anticipate. It is often the most responsible financial decision to make, though, when red ink swamps black. The Chapter 7 bankruptcy process in Texas and elsewhere is designed for business owners and individuals to obtain much needed debt relief as they attempt to build for a stronger financial future.
Source: Pensions & Investments