As investors grow increasingly hesitant about sinking more money into profitless Internet ventures, bankruptcy is emerging as the only option for some entrepreneurs.

A study released last week by Geltzer & Col, a New York-based restructuring firm, reported that 120 business-to-consumer companies and nine business-to-business companies have experienced layoffs since the beginning of the year. Of those, 31 have shut down or filed for bankruptcy.

"We're seeing a lot of companies running out of money," said Craig Litherland, a shareholder with law firm Sheinfeld, Maley & Kay. "A relatively small percentage of those companies are actually filing bankruptcy. Many are just going out of business."

Internet companies that file for bankruptcy generally have some assets that survive after they fail, such as inventory, office furniture, computers and buildings. But for many Internet companies, the value of their assets evaporates when they stop operating, Litherland said.

If Internet start-ups continue to fail at a rapid enough pace, it could have a ripple effect throughout the economy, Litherland said. Eventually, Internet failures might depress the real estate market and lead other businesses to seek bankruptcy protection.

Already Internet failures are affecting older, established technology companies that have done work for the dot-coms but haven't been paid, said Marci Lande-Romick, partner in the bankruptcy practice at Arter & Hadden. "We're seeing lots of creditors trying to sort out their financial situations as a result of another business' failure," she said.

Most Internet bankruptcies are relatively simple cases, like CookExpress, an online gourmet meal company founded by former Microsoft executive Darby Williams. It recently filed for Chapter 7 liquidation under US law. The company had only US$220,000 in assets and US$2.3 million in liabilities. Domain names and physical assets fetched US$50,000 at auction.

In another case, creditors forced the foundering Internet toy seller ToyTime.com into Chapter 11 bankruptcy to seek payment of trade debt.

Many failed Internet companies do not file for Chapter 11 reorganisation because they do not have money or a viable business to continue to operate, said Keith Shapiro, president of the American Bankruptcy Institute and managing shareholder of law firm Greenberg Traurig's bankruptcy and reorganisation practice.

Internet companies can generate more cash for assets by working outside bankruptcy court, he said. So many simply close their doors and sell what they can to pay creditors.

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