The purchase of a bankrupt business entails risks, as the buyer becomes responsible for settling liabilities to creditors. On the positive side, buying companies in bankruptcy can also serve as a catalyst for growth in new markets and provide you with inroads to new customers and vendors. The purchase process calls for careful research, negotiations with creditors and obtaining court approval.

Preparation Work

You can find business bankruptcies through searches of court records, announcements in publications or word of mouth. Once you've located an acquisition candidate, you need to review the relevant court documents. The court documents should include a comprehensive account of the financial situation and operational demands of the business you want to buy. If you can supply the necessary financial means and managerial know-how to salvage the business or prepare it for liquidation, you should secure the services of a lawyer with experience in the purchase of bankrupt companies to guide you through the process.

Creditor Negotiation

Before you can formulate a comprehensive purchase plan, you must meet with creditors of the business you intend to purchase. Determine what the creditors find acceptable in terms of payment, both what percentage of the owed amount they can accept and what payment structure they find acceptable. Depending on the business, you may need to deal with vendors, secured and unsecured creditors, as well as bondholders and shareholders. Creditors need to sign off on the settlement in order for you to purchase the business, so make sure you fully understand their terms and can meet them before proceeding.

Present Offer to the Judge

Unlike a private sale, the purchase of a business in bankruptcy requires the court to sign off on any deal. Presenting your proposed agreement to the judge and making the case for why your offer makes sense can give you an indication of the judge’s inclination to approve the purchase or not. It also provides the judge with an opportunity to make suggestions. If the judge finds the proposal acceptable or makes suggestions you find acceptable, the process moves forward.

Bid and Purchase

The final stage of the purchase process calls for you to formally submit your purchase offer to the court. In addition to the purchase offer itself, you need to submit a deposit equivalent to a percentage of your offer price, though the exact percentage or amount may vary from state-to-state or court-to-court. If the judge approves your purchase offer, you can proceed with the purchase.