Common Mistakes Before Business Bankruptcy Filings

When your business is facing financial uncertainty or financial difficulties, you may be discussing the possibility of a bankruptcy filing. As you consider your options, it is important to know that there are some common mistakes that business owners make leading up to a bankruptcy case, and you can avoid them by planning ahead. Consider the following frequently made errors by businesses that are considering bankruptcy so that you can prevent them from affecting your business.
Assuming You Will Need to Close Your Business
Many business owners are under the common misconception that a business bankruptcy means that the business will need to close its doors. While a Chapter 7 bankruptcy filing will result in a business closure — and Chapter 7 might be the right decision for your business given all of the facts — there are various types of reorganization bankruptcies that are often appropriate for businesses. In a reorganization bankruptcy, a business actually remains open throughout the bankruptcy process and aims to remain open into the future.
Waiting Too Long to File for Bankruptcy
Due to concerns about business closure as discussed above, or inability to face certain realities, many business owners wait too long to file for bankruptcy. In waiting to file, more debts can accrue, and errors can be made that may ultimately result in an individual business owner becoming liable for business debts. As soon as your business is having difficulty making payments to creditors, it is a good idea to seek legal advice.
Mixing Personal Finances with Business Finances
When a business starts to struggle financially, some business owners think they may be able to keep the company afloat if they bring personal assets into the business, or if they make a personal guarantee for a new business loan. It is really important to avoid mixing personal finances with business finances because these kinds of actions can leave a business owner responsible for business debt even if a business ultimately files for Chapter 7 bankruptcy and closes.
Paying Off Some Debts and Not Others
Paying off some debts — especially unsecured debts — and not others prior to filing for a business bankruptcy can result in complications later on in your bankruptcy case. Some debts may be eligible for discharge if your business is planning to file for a reorganization bankruptcy, and all debts will be worked into a repayment plan with secured and priority debts repaid appropriately. Before paying off any debts, talk to a lawyer about your business’s financial circumstances.
Actions That Could Look Like Fraud
It is critical to avoid any kind of action that could appear fraudulent. Do not remove certain assets from the business to avoid having them liquidated, and do not attempt to transfer business assets to personal accounts.
Contact Our West Palm Beach Bankruptcy Attorneys Today
If your business is struggling financially, you should not hesitate to find out more about business bankruptcy options in South Florida. Our firm regularly represents businesses of various sizes in different types of bankruptcy proceedings, and we are here to answer any questions you have and to begin working with you on your bankruptcy filing. An experienced West Palm Beach bankruptcy lawyer at Kelley, Fulton, Kaplan & Eller can speak with you today. Contact our firm for additional information.
Source:
law.cornell.edu/uscode/text/11