Results of the December FaxPoll?
Big time.

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Which of the following statements do you agree with?

Bankruptcy is simply a license to renege on financial 62% obligations
Bankruptcy is unfair to creditors, but it is necessary 26%

Bankruptcy is a legitimate way to restructure a business 12%

This poll was originally written to come at the issue from both sides, to address what it's like to go through bankruptcy as well as what it's like to have someone go bankrupt on you. But things didn't work out that way. Only 7% of you have gone through bankruptcy, whereas 86% have seen a customer go bankrupt, indicating that your impetus for taking the poll was to vent. Your attitudes toward bankruptcy were more or less uniform. "Bankruptcy empowers those who head poorly managed companies to take life-threatening risks with other people's livelihoods and reputations and walk away themselves with only a minor social stigma." That pretty much sums it up. Many of you are, perhaps understandably, rather unsympathetic toward those who go through the bankruptcy process. "Some people just weren't meant to manage a business." Some took a moral stance, calling bankruptcy "unethical" and "dishonorable." Some derided bankruptcy as "the easy road." But a few who had been through the process belied that notion. "I did not plan to go into bankruptcy -- who does? It destroyed everything for me personally, and I am still paying for it seven years later." Some, though they are admittedly in the vast minority, see bankruptcy in a slightly more positive light. "Bankruptcy is no picnic, but it is a legitimate way to restructure a business, or a more orderly way to dissolve one."

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Have you ever had dealings with a company that declared bankruptcy?

Yes, a customer or customers 86%
Yes, a supplier or suppliers 17%

Yes, a strategic partner or partners 6%

No 0%

How many companies?

1-5 61%
6-10 16%

More than 10 23%

What was the effect on your company?

Devastating 15%

A major inconvenience 46%
A minor inconvenience 33%

No real impact 5%

Why are you so harsh with the bankrupt? Because you've been burned, and burned badly. A whopping 78% have dealt more than once with companies that have gone bankrupt; 39% of you have dealt with such companies more than five times. And 61% said that it's more than a minor inconvenience. Why? Because you don't get paid. Seventy-five percent of you said you collected nothing from those bankrupt companies. Eighty-eight percent got paid less than 40¢ on the dollar. And the longer you've been in business, or the larger your business is, the more likely it is that you've been exposed. The faxes we received were rife with horror stories of how bankrupt customers nearly forced you out of business. "One major customer filed for bankruptcy during our start-up phase, taking 25% of our capital." Some have seen it happen to them so often, they plan for it. "We have a bad-debt budget as part of our annual budget." And as a result, some just aren't extending as much credit. "We never allow any customer to get in too deep." Smaller companies seem particularly hard hit. "We're so small it took away our ability to grow." Respondents with fewer than 10 employees, as well as those with revenues of less than $1 million, were more likely than larger companies to say the effect was "devastating" (23% and 20%, respectively). Although larger companies were in fact more likely to report having a customer go belly-up on them, smaller companies were more likely to say they felt the effects, because of their size and their difficulty in absorbing major losses.

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The laws and procedures associated with bankruptcy . . .

Are bad for everyone, except maybe the lawyers 52%
Favor the debtor 46%

Favor the creditor 2%

Practically everyone said the laws should be tightened or revised, with the specific emphasis on forcing payback. "All debts should be termed out, not eliminated." Bankruptcy should only "provide additional time to clear the debt." And some of you think the penalty should get personal. "Principals should be held personally responsible for all debts." Others recommended garnishing. "The debtor should be required to pay out of future earnings." And once Chapter 11 is through, some said, the retribution shouldn't end there. "Return-to-business status should be based on full payment of debts." And even if the debts are cleared, some called for some form of punishment: "Do not permit principals to start new businesses for 10 years after filing." Others were even more severe, calling for principals to serve jail time; perhaps the most extreme suggestion was "Hang a few in public."

But what if the shoe were on the other foot? Protection under Chapter 11 is available to you, too. "I would never let it happen to me." Well, it's not always that simple. What if, despite your most conscientious efforts, things just don't work out? Are all businesspeople who go through Chapter 11 either crooked or irresponsible? Keep in mind that Toys 'R' Us, the Lionel Corp., and the Manville Corp. all recently reorganized under Chapter 11. As one of you put it, "You have to give people another chance." Of course, the question remains: At whose expense? -- Christopher Caggiano

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Note: Multiple responses account for total percentages above 100%. n

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