Handling your financial problems without hiring a Bankruptcy attorney or Bankruptcy lawyers is not recommended. Whether it is an individual or a small business that is filing for Chapter 7 liquidation or even if a person is planning to file for Chapter 13, there is always need for assistance to help in doing this the right way. It is necessary get the debt to income ratio analyzed by a professional legal eagle that needs to also evaluate the cost and benefit of liquidation against reorganization of personal or business debts.
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Financial Distress
Financial distress is a Corporate Finance term that is used to show that there exists a condition in which accounts payable of a particular company are broken or honored with some degree of difficulty. In some cases, financial distress can lead to insolvency though it is normally associated with certain costs that are called the costs of financial distress.
Dealing With Costs
Typically, these costs are the same as insolvency costs and they also include cost of paying auditors, legal fees and management fees as well as sundry payments. Even if a company does not go into insolvency it may still need to bear costs of financial distress. In fact, this kind of condition will cause a company numerous problems which will result in inefficient management and other losses. All of this then results in conflict between shareholder and bond holder (creditor) interests.
Once a company sees its liquidation value slipping below its debt, it may actually result in forcing the shareholders to invest in riskier projects in order to better the chances of making the firm's value rise above that of its debt. The problem is that when the stakeholders invest in risky projects it will not be in the best interests of the bond holders because such investments will increase the likelihood of the firm's value decreasing. Also, a risky project generally does not normally have a positive net present value and costs might also start to rise because of failure to earn enough profits.
Consequences
Another consequence of financial distress is that the company may choose to go into liquidation. If this happens then the results will again decrease the firm's value. The right course of action is for the company to undertake corporate restructuring in which valuations can be used as tools for negotiations. Debt restructuring is another process and one that will allow companies, whether private or public, to reduce as well as renegotiate all of its offending debts which will help to improve and even restore the company's liquidity.
In case a company finds that it is not able to honor its commitments to creditors, then liquidation and insolvency are certainly options that have to be explored by both companies as well as by individuals. The best way to handle financial distress is by first getting the facts about the current situation. Next, there is need to communicate effectively and in a non-threatening manner. Be sure to determine how serious the problem is and then follow-up in order to determine whether a helping agency can provide required services. As long as a person is able to get the facts and determine the seriousness of their problem it will not be hard to find solutions to remove financial distress.
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