Cities and states are working through the reopening of businesses. And even though federal aid was made available to small businesses, it's possible that you couldn't tap into this cash. Or perhaps what you received just isn't enough to cover the loss of revenue paired with updated working restrictions.
We sincerely hope that you're doing ok, and on a path to growth. But we know that this isn't always reality. At Calkins Law Firm we work with many clients to restructure debt and negotiate with creditors. Here are our experienced tips for how to handle bankruptcy, if that's where you find yourself now.
Bankruptcy Best Practices
Debt in business isn't a bad thing, it's a fact of life. Without necessary funds no business can get off the ground, and this generally means taking on debt. When it can be dangerous is if debt is incurred not to fund growth, but to keep day-to-day operations moving. The path forward could veer any number of ways and sometimes, despite best efforts, bankruptcy is the most reasonable option.
So if you're now facing bankruptcy and aren't sure how to proceed, check these tips:
Admitting to yourself that your company is in trouble is the first step. Letting creditors know that you're having problems is another good idea. They need clients as much as you do and could be willing to work with you. And while it can be tempting to shift assets or property around to avoid seizure, that's never a good idea from a legal standpoint.
We definitely recommend consulting with an experienced bankruptcy attorney. They will know the best path forward. And be willing to spend the time necessary to help them complete your company's case.
This isn't a time to throw up your hands and walk away. Your overall expenses will be less if you do the legwork involved in organizing the company books and having clear numbers and figures ready for your attorney.
Everyone knows that when money dries up, bankruptcy is an option. But it's better to have clearly fixed in your mind how bankruptcy can help your situation. While you may not understand the ins and outs, at least be realistic in what you hope it will accomplish. Reorganizing a company that has been on a downward trend for some time may not be a viable or reasonable option.
Make sure to list all creditors on your bankruptcy schedules. Any creditors not listed will not be included in proceedings and those debts will not be discharged.
If you're seriously considering bankruptcy, now is the time to make sure that your business insurance is valid and up-to-date. Once you're involved in a bankruptcy filing, the insurance company may not be willing to renew.
Bankruptcy: A Beginning or an End
Depending on the type of bankruptcy filing you're involved in, restructuring your business could be the end result. In a best case, you'll be able to satisfy creditors and carry on with a clean financial slate. But in other situations, it could be best to find a new path forward.
Here are the key things to consider when you're looking into which type of bankruptcy filing will work best for your business and your goals:
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is what you'll file if you're a sole proprietor or if your personal finances are directly tied to business loans or other debts. A trustee will be appointed to take possession of property and assets and then distribute funds from sale to your creditors. The key thing to remember about Chapter 7 bankruptcy is that it requires a total liquidation of assets to cancel debt. So this isn't the option for you if you're hoping to keep your business alive after debt is discharged.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is a way to develop an income-based repayment plan that will span three to five years' time. All "disposable income" in that time frame will be devoted to debt repayment. A trustee is appointed but this type of bankruptcy filing doesn't demand liquidation and can instead be used to reorganize and recover your business. Chapter 13 can be accessed by sole proprietors and can be very useful for those who have debts that won't be discharged, like unpaid income taxes, domestic support obligations, or student loans.
Chapter 11 Bankruptcy
Chapter 11 bankruptcy is a reorganization plan geared toward business entities to help them stay active while also repaying creditors. A trustee may or may not be appointed in Chapter 11 cases. Repayment time will vary from case to case.
Regardless of the type of bankruptcy, you'll still need to attend a "341 meeting" at which the trustee and perhaps creditors will inquire about the business's financial state. The entire process length will be determined primarily by the amount of assets that need to be liquidated and the debt that needs to be restructured. Of course there are a myriad of details that you'll need to sort out with your qualified bankruptcy attorney, we're just laying out a very general synopsis here.
How Calkins Law Firm Can Help
At Calkins Law Firm, we have advised and aided many clients in reorganizing and restructuring debt, a key part of the bankruptcy process. We can negotiate with your creditors to come to the best possible outcome. That said, we aren't bankruptcy attorneys. So as with any legal challenge you'll face, we'd always suggest bringing in a professional--you'll want an expert to guide you through this process. An experienced, qualified bankruptcy attorney can answer your questions and help you to better understand how the process will affect your small business.