The long slump in the economy has already forced many businesses to close down. Many of those remaining are still struggling to stay afloat. Many people have been so busy trying to make the business work that they really haven't investigated their options for what to do if the business is no longer viable.
Even recognizing when it's time to pack it in can be tough. This article is intended to be a guide of some of the dos and don'ts for small business owners considering bankruptcy.
Things You Should Do or At Least Think About
Recognize When It's Not Working - Having the ability to recognize when a business is failing is not always as simple as looking at the books. Many businesses rely on periodic inputs of money rather than a consistent stream. In order to recognize when you should start exploring alternatives, you need to sit down with the books and calculate how long you can realistically expect to stay afloat, even if that pending deal does go through.
Speak With an Experienced Bankruptcy Attorney - Many people think of speaking to a bankruptcy attorney as a last resort option, but many bankruptcy attorneys are very effective at helping business owners negotiate with their creditors to attempt to work out a resolution. Creditors will appreciate any efforts to negotiate a settlement, but will also be aware of the trump card you are holding if they won't work with you.
Prepare Your Books and Papers - Your bankruptcy attorney will need to know where you stand before making any recommendations. If you do need to file bankruptcy, these papers will be important for preparing your petition. Not only will being organized be appreciated by your attorney, but it will also help you save on legal fees.
Have Realistic Expectations - Sometimes a bankruptcy can help the owner to restructure the business so that it can survive but often a bankruptcy won't help a business if the product or service isn't needed.
What You Shouldn't Do
Don't Hide or Move Assets - Most people considering bankruptcy are concerned about losing their assets. When business assets are involved, the concern may even be greater as some of these assets may be needed. Whatever the case may be, it is very important that you do not hide or give away any assets to any friends or relatives in an effort to conceal them. The trustee will find out. If there are assets you are concerned about, you should speak with your bankruptcy attorney to review your options.
Don't Lie - You will be asked to sign your bankruptcy schedules under penalty of perjury and you will also testify that they are complete and correct to the best of your knowledge when you meet with the trustee. Your bankruptcy attorney is your best ally. Talk with your attorney about any reservations you may have.
Don't Omit Creditors - The key to discharging your debt is making sure it is all listed on your bankruptcy petition. Make sure you are thorough when preparing your list of creditors as well as any collection agencies that may be attempting to collect on their behalf.
What to Expect from a Small Business Bankruptcy
Most people with business debt will file a personal Chapter 7 and include all of their personal and small business debt in the filing. There often is no reason for an LLC or Corporation to file a separate bankruptcy because:
- It cannot receive a discharge
- The trustee liquidates corporate assets if their value is over the debt amount owed by the business - this is seldom the case
- It serves notice to business creditors that the business is no longer operating, although they usually already know that fact
A single personal Chapter 7 bankruptcy allows the individual to save money by using one petition to discharge their personal debt, including their personal guarantees of business debt. This is one the greatest advantages of a small business bankruptcy.
Once your bankruptcy has been filed, you will be required to attend a 341 meeting, otherwise known as a "meeting of creditors" approximately one month later. At this meeting, the trustee may ask you some questions about your business. Creditors are invited to attend this meeting as well and may ask you some questions about your company's financial condition.
If there are any assets left over from the company that are not exempt, the trustee will gather and sell them at some point after the meeting. You will receive your discharge once the creditor has a 60 day period to object. Once the trustee has distributes any proceeds from liquidated assets your case will be closed.
If you are a business owner contemplating bankruptcy, you should speak with an experienced Minneapolis business bankruptcy attorney to review your options.