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Stand Guard

Bankruptcy can sneak up on you if you aren't paying attention. To keep your business safe, be on the lookout for these warning signs.

This story appears in the June 2007 issue of Entrepreneur. Subscribe »

Just because it is costlier and more difficult to file for bankruptcy now than in years past does not mean that fewer businesses will wind up doing it, particularly if former Federal Reserve chairman Alan Greenspan's warning of a recession later this year materializes. A January poll by the American Bankruptcy Institute found that 71 percent of respondents anticipate bankruptcies among small and midmarket businesses to rise substantially in 2007. "It's the law of gravity," explains John Penn, bankruptcy attorney with Haynes and Boone, one of the nation's fastest-growing law firms. "What goes up will come down."

At least that's true for some over-leveraged businesses that have simply kept borrowing to plug the holes and keep from sinking, says Jennifer Emens-Butler, partner at Obuchowski & Emens-Butler, a firm that specializes in business and consumer bankruptcy. "If they have not fixed what is broken, when interest rates rise even slightly or hedge funds start calling in their loans for whatever reason, that could [result in] a pretty serious crash."

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