Obama Signs the Credit Card Act

Last year the Obama administration created the American Recovery Capital lending program which is providing $255 million in emergency loans until September for “viable” small businesses facing immediate financial hardship. Businesses facing financial problems could receive deferred payment loans of up to $35,000 interest-free for five years.  However the program has not worked out as many had hoped and it may not provide much relief for businesses who really need to file Chapter 11 bankruptcy.

One of the problems with the American Recovery Capital loan program is that it provides too little, too late and requires borrowers to battle through a mile of red tape, a lot more red tape than Chapter 11 bankruptcy might require.  The entire process can take up to six months from application submission to approval and that’s often too late for businesses who are already teetering on the edge of bankruptcy.  Also, businesses who apply for the program in the hope that they will avoid bankruptcy must supply detailed financial records many troubled businesses owners fail to keep.  Those documents include monthly statements for each credit card, receipts for all credit card charges in the past year, the purpose of each charge, loan invoices and other documents. Finding and submitting all of the required documents is a lot more difficult than many business owners expect which can often discourage them from applying for the program.  Another thing to keep in mind is that creditors can still pursue a business owner for unpaid debts while they are applying for the American Recovery Capital loan and creditors are not required to delay their collections action as is the case when a business owner files Chapter 11 bankruptcy.  If a business owner is facing very hard times that threaten his/her ability to handle the day-to-day financial operations of the business, it may be time to consider Chapter 11 bankruptcy.

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