The Cascading Effect of Business Bankruptcies
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The Cascading Effect of Business Bankruptcies

Over the past year, many businesses decided to file bankruptcy. Few industries have escaped the effects and hardship of the recession.

A recent article in The Tampa Bay Business Journal highlighted business bankruptcies.

There are diverse reasons that companies file bankruptcy and creditors had differing feelings about the rising number of unpaid accounts.

Businesses that once had more relaxed policies about extending credit are now re-evaluating their business models and making changes.

For example, when Gabriella Chocolates Inc. filed for Chapter 7 in September 2008, it owed creditors more than $3 million.  Latitude 23.5 Coffee & Tea Corp. lost $1,300 when Gabriella’s debts were discharged, and has since decided to tighten up credit terms on its other open accounts.

When Nature's Harvest Market and Deli Inc. filed Chapter 11 bankruptcy in October 2007, it owed Global Organic Specialty Source Inc. $11,833.

Mitch Blumenthal, president and founder of Global Organic told the Business Journal that the organic produce business tends to have small margins.Any losses or unpaid accounts can have an impact.

Luckily for Blumenthal, he was able to recover the money owed and attorney fees because of the Perishable Agricultural Commodities Act of 1930. The Act gave his business priority as a creditor in the Nature's Harvest bankruptcy.

The business’ owner, David Taylor, warned Blumenthal about the Nature’s Harvest bankruptcy ahead of time.  Blumenthal and Taylor had done business for nearly 10 years.

When homebuilder Lindhorst Construction Inc. filed bankruptcy in August 2008, it owed creditors $1.4 million.

One of Lindhorst's creditors was Kahle Wholesale Inc., which does business as Coast Floor & Tile Group.

Kahle lost Lindhorst as a long-term customer and was out the money that the company owed when the debt was discharged. Kahle has plans to change its business model a bit to add more retail customers as it waits for the construction industry to rebound.

When Shells Seafood Restaurants Inc. filed bankruptcy in September 2008, it owed ad agency Dunn & Co. Inc. $53,237 for printing and advertising costs.

Troy Dunn, president of Dunn & Co. told the Business Journal that the company still plans to work with restaurants, but plans to expand the agency beyond the food service industry after the loss.

Dunn says that it is now a challenge to establish new restaurant accounts because the recession is causing so many to scale back their marketing efforts.

General contracting firm JB Group LLC lost $26,439 for renovation work done for Shells in September 2007.

JB Group's owner, John Davenport, told the Business Journal that the debt was for over 10 days of work on five or six jobs that his company performed for Shells.

Expenses related to labor, materials, travel costs and the cost of subcontractors went unpaid.

After Davenport found out about Shells' bankruptcy, he made sure to pay his subcontractors in order to avoid disrupting his business.

Shells' unpaid debt was a huge hit to JB Group, but Davenport was committed to honoring contracts and his company remains viable despite the loss.

Some companies, like Global Organic, are able to recover debts after businesses that owe them money file bankruptcy.

Others, like Kahle, Dunn, and JB Group are not as fortunate.

It may be a sign of the times to see many well-established businesses begin to expand in new directions. For some, it will be essential to survive the recession.

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