Zuckerberg Bankruptcy Law Office

Medical practitioners tell us to be alert for early warning signs of illness.  Moody's Investors Services deals in early warning signs of bankruptcy. Using the default rate on corporate bonds to foretell bankruptcies, Moody's told U.S News and World Report it expects that default rate to be fifteen times higher in 2009 than it was in 2007.

As a bankruptcy attorney, I was especially interested in the list of "common threads" Moody's finds in firms that are in danger of needing to file bankruptcy. Moody's was talking about large corporations, but mentions the same warning signs I see in small businesses, and the same symptoms I see in individuals who turn to me for help filing bankruptcy.

Most of the 15 firms Moody predicts might not survive 2009 have:

• limited cash for a rainy day
• a lot of debt
• large payments due over the next year

"In ordinary times", Moody's Investors Services explains, "it might not be so hard for businesses to refinance loans or get new ones, to help keep the cash flowing. But in an acute credit crunch it's a different story, and at companies where sales are down and going lower, skittish lenders may refuse to grant any more credit.  It's a terrible time to be cash-poor."  That's precisely why, in a former blog post (see "Credit Is The Dike Between Small Business And Bankruptcy") I stressed the importance of small businesses having access to enough money to keep their operations going smoothly and to expand.

Many small business owners seek my advice even if filing bankruptcy is something they never expect to do.  They want to protect themselves by managing debt and learn ways to obtain financing credit. The reality of today is that even if personal assets are not required as collateral for a business loan, the creditor will run a thorough personal credit check on the applicant for a loan and rely heavily on personal credit scores in making decisions to grant business loans.

Those no-savings-for-a-rainy-day-and-unmanageable-debt warning signs Moody's uses are good alerts for consumers and business owners alike any day of the year!