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Car dealership, owner both file for Chapter 7 bankruptcy

A Cadillac dealer in the Washington, D.C., area is seeking Chapter 7 bankruptcy protection after falling on difficult financial times. Berrang Cadillac, a longtime General Motors dealership, has reported assets of just $688,131 and liabilities totaling $4.8 million. Both the dealership and the owner of the business are seeking financial protection under Chapter 7 bankruptcy provisions, according to media reports.

The owner of the firm has listed assets of $5.1 million and liabilities of $5.2 million. Chapter 7 bankruptcy is generally reserved for people whose debts outweigh their assets; in this case, the man's assets are only about $100,000 less than his liabilities.

Courtroom documents show that the business opened in 1977. Berrang was among those affected by the GM reorganization, but he was able to rebound for a short period after the recent financial hardship. Even though car sales in the state of Virginia have ballooned to about $18.2 billion, car dealers in smaller communities have been suffering. Most of the estimated 65 defunct dealerships that closed during the past five years were in low-population areas.

Surprisingly, experts say that the profit margin on new cars has remained the same since 1979, even though the average price of a car has increased from $7,000 to $30,000. Most dealers still earn just $1,250 for each car sold. Compare that to the costs of maintaining a dealership, and most industry leaders say it is clear that these facilities can no longer rely on car sales alone. Dealerships now survive by selling used cars and offering maintenance services.

Business owners are permitted to file for separate personal bankruptcy. In this case, it is not clear whether the man will have personal liability for any of the company's debts. Chapter 7 bankruptcy is an excellent option for both situations, though, because it allows for full liquidation of assets to pay for existing debts. This process will essentially "wipe the slate clean" for both the business venture and the man's personal holdings.

Source: The News Virginian, "Longtime Waynesboro car dealer seeks bankruptcy protection," Bob Stuart, March 15, 2013

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