Business bankruptcy may appear to be an easy way out for businesses that are heavily weighed down by debt, but bankruptcy is not as simple as it may seem. You must determine whether your business has a future or not. If your business does not have any future, then you may opt 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. Consider contemplating on and preparing the following before you file for business bankruptcy:
1. Keep your financial statements, tax records, and a list of contracts (executed and under execution) ready. These have to be filed along with the petition.
2. When you are planning to file for business bankruptcy, you need to have an attorney who is considered as an expert on the type of bankruptcy that you would be filing for. For example, if you are looking for protection under Chapter 11, it’s best not to work with an attorney who specializes in Chapter 7 bankruptcies. This is because under Chapter 11 bankruptcy, you must adeptly present your case to creditors and an attorney who specializes in Chapter 7 bankruptcy may not be good at it. Chapter 7 bankruptcy on the other hand, is very simple and blunt, your business must be liquidated and so the court will help you liquidate it. Reorganization under Chapter 11 bankruptcy would require discussions between you and your creditors, which would be more complex as compared to liquidation.
3. If you’re a farmer, you can file for protection under Chapter 12 and if you’re a sole proprietor and a wage earner, you can prefer filing business bankruptcy under Chapter 13, which is known as wage earners’ bankruptcy.
4. It is essential that you will be honest with your lawyer, and inform him about the littlest financial detail that will support the bankruptcy case. Let him know about those things that are classified as priority debts which consist of employee benefits, child support, alimony, etc. Also, talk about the number and nature of creditors for example, fully secured creditors, partially secured creditors, unsecured creditors, etc.
5. If you would be going for a Chapter 11 bankruptcy, you will be obligated by the court to be the case trustee (except of course in cases of fraud), and you will then become a debtor in possession. A committee of creditors will be designated and you will be required to submit a reorganization plan to the court. If the committee of creditors approves of the reorganization plan you presented, then the court will give its affirmation. If you have opted for filing business bankruptcy under Chapter 7, you will have to provide a list of your non-exempt assets to the court, which will then dispose them and divide the earnings among your creditors in order of their priority.
Filing a business bankruptcy may appear simple, but is more complex than you can ever imagine. Get hold of a lawyer who specializes in your type of bankruptcy before making a move. Good luck.
Small businesses very rarely think about bankruptcy unless serious difficulties exist. If your organization has fallen behind with creditors and you are thinking about chapter 11 bankruptcy, there are other choices including business debt consolidation or debt management. Consider all possible choices before declaring business bankruptcy.
