During difficult economic times, it's not uncommon to see a business forced to file for bankruptcy.  True to the phrase, "one man's trash is another man's treasure" a change in ownership may breathe new life into a failing business. 

 

Here are the six steps to follow when buying a bankrupt business.

 

1. Analyze the Business Data

Before you begin the process of acquiring a bankrupt business, make sure to realistically evaluate your potential investment.  Review court documents to understand the financial and operational obligations of the business you are considering.  Consider your ability to solve current problems, reorganize assets, and get the business out of the red before you commit to any decisions.

2. Hire a Bankruptcy Lawyer
Many lawyers specialize in a specific area of law.  Be sure to hire someone that specializes in buying bankrupt businesses, not just a general practicing attorney.  The Federal Trade Commission (FTC) provides a consumer guide that explains other important information about hiring a lawyer.

3. Negotiate with Creditors
It is critical to meet with the business' creditors and understand their flexibility in debt reduction.  When you meet, ask the creditors for discounts or payment options to resolve unsettled debt.  Creditors will approve the final settlement, so it's important to understand their conditions before you invest more time or money.


4. Make Your Case to the Judge
Meet with the judge handling your case and demonstrate to them that your offer is reasonable.  This step is key - the court will not approve an offer that isn't considered a fair distribution of payment.

5. Submit Your Bid and Deposit
Authorize your lawyer to submit an official written offer to acquire the bankrupt business and a check for the deposit to the court.  The judge will determine whether or not you have met fair distribution requirements and render their decision.

6. Close the Deal
Mobilize your assets and prepare for acquisition so your deal can close as quickly as possible.

 

Discuss Buying a Bankrupt Business in the Community