New Bankruptcy Law Will Hurt Entrepreneurs

  Anyone who has worked with entrepreneurs in start-ups knows two things.  First, they are not careful about creating and using a limited liability entity when they begin and, second, a common form of start-up financing is personal credit cards ("they max out their cards").  The new bankruptcy law, the Bankruptcy Absue Protection and Consumer Protection Act of 2005 signed in April and effective in October, will hurt these entrepeneurs.  Entrepeneurs caught in failing businesses will not be able to start anew, using their experience to start successful businesses on their second or third try.  The bankruptcy law will bind them to their initial debts.  The Ewing Marion Kaufman Foundation in Kansas City, Mo., has sponsored a study on the problem (Elizabeth Warren & Robert Lawless authors).  The studty found that Congress did not have accurate data on the number of entrepreneurs that would be affected by the new law.  The data used by Congress overstated the number of personal bankruptcies and understated the number of business banruptcies.  In essence, the new bankruptcy act creates more traps for entrepreneurs and will, at the margin, discourage some entrepreneurs from starting new businesses.