Bankruptcies on the rise: Personal filings often affect small businesses

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With personal bankruptcies reaching record levels in first-quarter 2003, small businesses are suffering as well.|ret||ret||tab|

While there are no numbers available on how many personal bankruptcies include businesses, SBJ research shows that 6 percent of June's personal bankruptcies had small businesses tied to them.|ret||ret||tab|

In the Western District Court, 374 bankruptcies were filed in June. Of those, 348 were personal bankruptcies filed under Chapter 7, and 20 of those cases noted that the individuals were doing business as, formerly doing business as or also known as a small business entity.|ret||ret||tab|

Jon Gold, a partner with Reynolds, Gold and Grosser, said it is not uncommon to see personal bankruptcies that are a result of the owners trying to save the business.|ret||ret||tab|

"When the business runs out of money, then you start seeing the personal use of their resources," Gold said. "(Owners) try everything they can to keep a business going. It's just that entrepreneurial fight."|ret||ret||tab|

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Historic high|ret||ret||tab|

Attorneys like Gold have seen firsthand how bankruptcies have grown in recent years.|ret||ret||tab|

"Last year there were almost 1,600,000 in bankruptcy filings (nationwide). I can remember back when I first started 13 years ago, you didn't even have half that number; you probably had a quarter of that number," Gold said.|ret||ret||tab|

Nonbusiness filings continue to break records while business filings are down. However, as mentioned above, those nonbusiness filings include a number of small businesses. |ret||ret||tab|

For example, among the most recent personal bankruptcies are the owners of Firehouse Coffee Bar, 1281 E. Republic Road, and the owners of TCBY Treats, 433 W. Sunshine. |ret||ret||tab|

Gold, who represents Thomas LaDon and Carol Vickers, owners of the Firehouse Coffee Bar, said the couple filed personal bankruptcy and closed the business "after exhausting all their resources to keep the business going."|ret||ret||tab|

At the time of the filing, the Vickers had debts of $337,834.63.|ret||ret||tab|

TCBY Treats, formerly owned by James Edward Robertson and Kathryn Renee Robertson, closed April 22. The couple filed for Chapter 7 bankruptcy June 10 after nearly three years in business.|ret||ret||tab|

Attempts to contact the Robertsons were unsuccessful. However, attorney David Schroeder, who represents the Robertsons, said the personal bankruptcy filing was precipitated by the failure of the business to sustain itself and its owners. |ret||ret||tab|

"It appeared from all projections that the business just wasn't going to make enough money to sustain itself; with that being the case, Chapter 11 reorganization would not be feasible. And the Robertsons were in need of relieving themselves of the debt and starting fresh," Schroeder said.|ret||ret||tab|

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Creditors|ret||ret||tab|

For the Vickerses, much of their unsecured debt ($163,696.74) was in an unfulfilled lease and credit card debt; their secured debt ($174,137.89) was for their home and personal vehicles. However, they were current with their vendors.|ret||ret||tab|

Court documents in the Robertsons' case show debts of $249,830.67 $97,256.82 in unsecured debt and $152,573.85 in secured debt. Among their creditors are a number of food companies including Quality Food Inc., Blue Line Distributors, Turners Food Store and Coffee Bean International, along with around 50 other companies. |ret||ret||tab|

Quality Foods, also known as Quality PFG, has an unsecured claim of $6,670.20 against the Robertsons. |ret||ret||tab|

When a client is having trouble, cutting them off is not necessarily the solution, said Jane Elder, assistant credit manager for Quality PFG.|ret||ret||tab|

For example, Elder said that Quality PFG does not deny its services to customers who have trouble paying, but it does require an on-site payment.|ret||ret||tab|

She added that a former company president's philosophy on customers in debt was, "If we don't sell to them someone's going to, and if nobody does, they won't stay in business and they'll never pay us."|ret||ret||tab|

Elder said her company prepares for bankruptcies among its customers by setting money aside. On average, one business customer a month files bankruptcy, Elder said. Based on its annual sales of $30 million, Quality PFG sets aside $2.5 million against potential bad debt.|ret||ret||tab|

"It's just part of doing business. You have to make an allotment as part of your accounting journal entries. (Quality PFG has) an allowance for bad debt and as long as (the company) doesn't exceed it, it will be OK," Elder said.|ret||ret||tab|

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Credit cards|ret||ret||tab|

With on-site payment required, businesses will sometimes take cash advances or otherwise use credit cards to make payments, which can lead to more problems in the future. |ret||ret||tab|

"The last thing you want to do is get to a point where you are cash poor and all of a sudden all your creditors want to put (you on) COD that's the quickest way into the bankruptcy courts there is," said Craig McMichael, SCORE and Associates counselor at the Springfield branch of the U.S. Small Business Administration.|ret||ret||tab|

As business falters, increase use of credit cards on a personal level is evident. |ret||ret||tab|

"I see people that use the credit cash advance to dump into the business to keep the business afloat. On the other hand, I see people who can take no money out of the business to live on so they start drawing on the credit cards for their living cost because they have no other source," Gold said.|ret||ret||tab|

It is not uncommon to see credit card debt listed as the largest expense on a bankruptcy filing, and the amount of debt that bankruptcy attorneys are seeing continues to rise.|ret||ret||tab|

"I've seen more of the debt become available and higher balances people coming in with over $100,000 in credit card debt. It didn't used to be that way," Gold said. |ret||ret||tab|

"An average amount of credit card debt that I see is probably $25,000 to $60,000," Gold said, adding that 10 years ago, credit card debt typically ranged from $5,000 to a maximum of $20,000 in bankruptcy cases. |ret||ret||tab|

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