Bankruptcy Law

Will AI Help Prevent Business Bankruptcy Filings?

Key Takeaways:

  • Artificial intelligence (AI) has the power to transform how we do business and make critical decisions.
  • Business owners are looking to AI tools to help them manage their finances.
  • AI helps businesses stay on top of their finances, but it is no substitute for the knowledge and experience of a dedicated bankruptcy attorney.

The artificial intelligence (AI) revolution has begun. This emerging technology can transform how Americans do business and make critical decisions. One of the ways AI is helping is through advising companies on their finances.

The federal government reported over 10,000 business bankruptcy filings in America in 2022. With so many companies filing for bankruptcy, more and more business owners are looking to generative AI tools to help them manage their finances. But the question remains — can businesses trust AI to help keep them out of bankruptcy?

This article discusses how AI and machine learning can be used to steer businesses away from bankruptcy. Still, while AI continues to be exceptionally useful, it is but one tool at your disposal. Having a dedicated attorney with experience in bankruptcy cases is often the best way to navigate such complex financial and legal challenges.

What Is Artificial Intelligence?

AI, sometimes called machine learning, is a computer assistant that can learn as it goes. AI works by analyzing large datasets and using algorithms to determine trends and patterns. From there, the AI can provide users with suggestions and predictions.

As a tool, AI is only becoming more and more useful in our everyday lives. We now use it for various tasks, including advancing health care, driving cars, setting up appointments, creating art, and providing financial advice. Often, AI can automate these tasks quickly and more efficiently than their human counterparts.

Still, AI is not perfect, and its quality varies depending upon a variety of factors, including erroneous data and hardware limitations. While companies like OpenAI (makers of ChatGPT) work to navigate these challenges, AI is still best thought of as a helpful tool that assists humans. It is not a replacement for the financial expertise or know-how of a human in the legal profession.

Why Do Businesses File for Bankruptcy?

Business bankruptcy is a legal process where a company acknowledges that it cannot meet its current bills or debts without restructuring the business or closing. The business then develops a plan to repay its obligations and lenders through either reorganization or selling off assets.

This can be a stressful time, often arising in the first place due to a strain on the business’s financial condition. The public policy behind this approach is to relieve some of that burden and allow business owners a fair and organized opportunity to pay off their debts, which is in the best interests of all parties.

American business bankruptcy varies depending on state laws and the type of bankruptcy code, such as Chapter 7 or Chapter 11 bankruptcy.

Can AI Reduce Business Bankruptcy Filings?

Generative AI is only just now being implemented into day-to-day business operations and procedures. As such, there is little statistical data to determine whether AI can help steer a business clear from bankruptcy court.

Still, in theory, many opportunities exist for businesses to implement AI in a way that helps their bottom line. For businesses seeking help managing their finances, AI can:

  • Predict potential outcomes: AI uses large swaths of information called datasets to predict the future. This form of predictive analytics considers market trends, consumer behavior, and sales to make determinations and help users avoid costly risks and stay ahead of financial challenges.
  • Manage inventory and supply chain: AI can analyze a company’s inventory and supply chain processes to determine valuable cost-saving measures the company should take.
  • Warn of compliance issues: AI tools can be used to read contracts and legal documents and warn of any potential liabilities or problems with compliance. This can be helpful when filing critical financial statements.
  • Catalog debt: AI can analyze cash flow, interest rates, and your debt repayment calendar to suggest a payment plan that takes your needs and challenges into account with precision.

Because no two bankruptcy cases are alike, there is no one-size-fits-all approach to avoiding bankruptcy. A fiscally healthy business will not rely solely on AI tools. Instead, savvy business owners will add AI to a vast arsenal of financial safety protocols. Generally, this means having both financial and legal advisors on the payroll.

AI can do a lot, but it can’t do everything. While AI is an emerging technology and a fantastic creative tool, there is simply no replacing real legal experience. This is why AI should be used with, and not in replacement of, a real lawyer.

Seeking the helpful guidance of a dedicated attorney opens you up to a host of benefits that AI can’t deliver. Such benefits include an empathetic and listening ear, a backbone of legal education, and years of dedicated experience working on similar bankruptcy cases to your own.

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