Builders Should Not Necessarily Ignore the Bankruptcy Option

By Keat Foong, Executive Editor Washington, D.C.–Bankruptcy is definitely an option that builders should learn about even if they do not pursue it, according to the presenter at a recent seminar sponsored by Builder Partnerships. Jim Weigel, of The Shinn Group, a home builder consultant, was the presenter for the seminar entitled “Financial Impacts: Is Bankruptcy an Option?” According to Weigel, bankruptcy can be used not only to liquidate a business, pay off its creditors and shut it down, but also to ensure a business’s ability to survive, for example by providing it temporary relief from creditors. It can be used as a tool to cause creditors to enter a plan of action that allows the company to continue as a going concern. “That is the biggest reason most [companies] go into [bankruptcy],” he said. Big lenders, for example, understand that bankruptcy can delay them in obtaining their collateral. Most people have a fear of bankruptcy because it implies failure, Weigel acknowledges. But fewer than 1 percent of companies that consider it actually file for bankruptcy, he said. Weigel also noted that the impact of bankruptcy filing on sales in a weak market such as the current one is less than when times are good. Weigel said builders should at least meet with a bankruptcy attorney to explain the options, costs, pluses and minuses of bankruptcy. That is a one- or two-hour conversation that is probably the best money the builder will ever spend, he said. “The very first thing is to set up a meeting with an attorney and make sure you understand everything to know about bankruptcy,” he said. Subsequent steps the builder should take according to Weigel include: assess the current and anticipated situation; understand the real value of land; develop your financial analysis for each project, rolled into each bank and company; and provide regular, consistent information to all lenders.