Filing A Business Bankruptcy Is Not As Easy As It Seems
Business bankruptcy may look like an easy way out for businesses that are heavily weighed down by debt, but bankruptcy is not as easy as it may seem. You need to determine whether or not your business has great potential. If your business does not have any future, then you may choose to file for bankruptcy under Chapter 7, which will help liquidate the business. However, if you can see some light at the end of the tunnel, you may prefer to file for bankruptcy under Chapter 11, which will help reorganize the business. Before filing a business bankruptcy, consider and prepare for the following:
1. Keep your financial statements, tax records, and a list of contracts (executed and under execution) ready. These need to be filed together with the bankruptcy petition.
2. When you are planning to file for business bankruptcy, you need to have a lawyer who is considered as an expert on the type of bankruptcy that you would be filing for. For example, filing for a Chapter 11 bankruptcy would need you to have someone who is an expert in Chapter 11 bankruptcy and not with a Chapter 7 bankruptcy. This is because under Chapter 11 bankruptcy, you must skillfully present your case to creditors and an attorney who specializes in Chapter 7 bankruptcy may not be good at it. A Chapter 7 bankruptcy is very straightforward in a way that the court would just help you liquidate your business. Chapter 11 bankruptcy is reorganizing the business and it needs you to negotiate with your creditors, which is much more than a plain blunt approach.
3. A Chapter 12 bankruptcy is for farmers, while a Chapter 13 bankruptcy, which is also known as a wage earners’ bankruptcy, is for sole proprietors, who are also wage earners.
4. Be honest and truthful with your lawyer and tell him every single financial detail that will help your bankruptcy case. Talk frankly about your priority debts like alimony, child support, employee benefits due, etc. Also, discuss the number and nature of creditors for example, fully secured creditors, partially secured creditors, unsecured creditors, etc.
5. If you’ve filed for bankruptcy under Chapter 11, the court will require you to act as the case trustee (except in certain fraud cases) and act as a debtor in possession. A committee of creditors will be appointed and you will be required to submit a reorganization plan to the court. The committee of creditors will then vote on your reorganization plan and if it is approved, the court will confirm it. If you have opted for filing business bankruptcy under Chapter 7, you will have to furnish a list of your non-exempt assets to the court, which will then dispose them and divide the proceeds among your creditors in order of their priority.
Indeed, filing for business bankruptcy is not that easy and could get quite complicated in the process. Get hold of an attorney who specializes in your type of bankruptcy before moving an inch. Good luck.
If your business is in debt and you are thinking of declaring bankruptcy, seek the advice of a bankruptcy lawyer who has experience dealing with chapter 11 bankruptcy. You may also want to consider additional options like business debt consolidation or debt management for small businesses.