In Bankruptcy, B Is For Business

Business is my bankruptcy “B’ word. Business debt of the individual filing bankruptcy is dischargeable just as other personal debt.

In Silicon Valley, the very innovation and risk taking that makes the Valley vibrant brings with it the risks of not making it in the marketplace.

Bankruptcy can be the “do over” vehicle, freeing manpower and resources to move on with life. People here inevitably move on to try again, which is what makes this place exciting.

At the conclusion of his book The Lexus and the Olive Tree, Thomas Friedman, writer for the New York Times, (@NYTimesFriedman) imagined the characteristics a society needed to thrive in the global economy.

Generous bankruptcy laws, he proposed, were essential for that society to prosper.

a country with a system of bankruptcy laws and courts that actually encourages people who fail in a business venture so declare bankruptcy and then try again, perhaps fail again, declare bankruptcy again, and then try again, before succeeding and starting the next Amazon.com without having to carry the stigma of their initial bankruptcies for the rest of their lives.

In Silicon Valley, says renowned venture capitalist John Doerr, it is O.K. to fail and in fact it might even be important that you failed before on someone else’s money: In Silicon Valley, bankruptcy is viewed as a necessary and inevitable cost of innovation, and this attitude encourages people to take chances. If you can’t fail, you won’t start. Harry Saal, who founded one of the most successful software diagnostic systems in Silicon Valley, after being involved in several start-up ventures that went belly-up, once told me over coffee in Palo Alto: The view here is that you are always better and wiser for having failed. Which is why when people here fail after having tried something, they often have an easier time raising money the next time around. People say, Oh, he went bankrupt on that first venture. I bet he learned something from that, so I’ll bankroll him again.
In Europe, bankruptcy carries a lifelong stigma. Whatever you do, do not declare bankruptcy in Germany: you, your children and your children’s children will all carry a lasting mark of Cain in the eyes of German society. If you must declare bankruptcy in Germany, you are better off leaving the country. (And you’ll be welcomed with open arms in Palo Alto.)

Some struggle with the concept that when the business is a sole proprietorship, rather than a corporation or an LLC, there is no dividing line between business debts and personal debts. When a person files bankruptcy, all of their debts of whatever origin, must be listed. One cannot just “file bankruptcy on the business debts.”

While our bankruptcy laws became less generous with the changes of 2005 for those with largely personal, consumer debt, bankruptcy remains open and forgiving for those with business debts.

This post was brought to you, as they say on Sesame Street, by the letter “B”.

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Image courtesy of TooFarNorth.