It is important to take a step back and assess the situation carefully before filing a bankruptcy petition. You must decide if the business can be reorganized or if it is better to liquidate the assets and shut the company down permanently. You’ll be tempted to make mistakes as you try to resolve the debt. You need expert legal advice for this and many other reasons to get rid of your business debts. Here are some mistakes you should avoid when filing bankruptcy in Alabama.
Spending money on your business
It may be that you want to give the business one more shot, or for other reasons feel the need to spend the remaining money. This is a big mistake, because bankruptcy courts may view it as an attempt to avoid payment to creditors. The trustee in charge of your bankruptcy proceedings might decide to clawback the money that you spent. Clawbacks, also known as voiding transactions, are attempts to recover money and give it to creditors.
You don’t want to have a clawback during bankruptcy, because it will slow down the process and make the situation worse. Once you have determined that your business is not viable, stop spending money. It’s okay to pay off outstanding debts and cover payroll but not make big purchases or use unnecessary services. At this point, you should speak to a bankruptcy attorney about the options available for closing the business and paying off its debts.
Sell off assets
Selling off assets is a rational and normal response, but not if you plan to file for bankruptcy. Selling assets is one of the elements of bankruptcy. This allows you to accumulate cash in order to repay your business creditors. The bankruptcy trustee may view the sale of business assets in 90 days before filing bankruptcy as fraudulent.
The trustee will investigate the circumstances surrounding the asset sale as well as who or what bought it. The trustee can initiate a clawback if he finds out that the sale was not legal because it was made to a friend or family member, or that the amount was more than 600 dollars.
The Wrong Chapter to File Under
Only two chapters are available for businesses to declare bankruptcy: 7 and 11. Chapter 7 bankruptcy is only for businesses who are closing permanently and want to liquidate all their assets and inventory. Chapter 11 bankruptcy is for businesses that want to reorganize their debts, and can prove that they are reorganization-capable.
You can easily make the mistake to file for Chapter 13 when you should have filed for Chapter 11 or 7. This is especially true if your filing without an attorney. This can be costly because it could result in your petition being rejected, you losing your filing fees and you having to re-do your petition. You must re-file the bankruptcy petition and pay all the fees associated with the correct chapter.
Repaying Preferred creditors
It is known as an “inside transfer” and involves paying back investors who had invested in the business prior to bankruptcy. Although it’s a reasonable action, the bankruptcy court may not be pleased with your decision and take the money back. Investors can make a claim for payment to the trustee. The bankruptcy proceedings aim to pay creditors equally. The trustee should handle all creditor repayments, which will help your bankruptcy to proceed smoothly.
Hide Assets
This can be a big temptation, particularly if you have assets that are valuable and/or that you do not want to give up for various reasons. The trustee may find out that you tried to hide assets, and it’s not worth the risk. Your bankruptcy petition can be denied, and you could face prosecution.
Asking the trustee to allow you to buy the asset is a better option. You should discuss this with a bankruptcy attorney to find out more about possible strategies for purchasing the asset.
List All Creditors
If you fail to include a creditor on your bankruptcy list, you could end up owing that entire amount after it has been discharged. Some debts survive bankruptcy. However, you do not want to discover the hard way how much you owe after the bankruptcy has been discharged or reorganized.
You can file an ex parte motion in order to reopen bankruptcy and add a creditor who was missed. This requires that you ask a judge for permission to reopen bankruptcy solely so as to amend the petition. A lawyer will be needed to help you write the motion correctly and file it. You should also let your lawyer represent you before the judge in order to increase your chances of adding a creditor.
Delaying Legal Help
It is difficult to recognize the point where a business can no longer be viable, but waiting too long to declare bankruptcy will make the process of closing or restructuring the company more painful. You will be able to end your suffering faster if you realize that the business is not viable. A bankruptcy lawyer at Grainger Legal Services, Montgomery, AL can help you develop a plan to close the business in a way that is acceptable to the court. Contact us to find out more about the advantages of filing a bankruptcy for your business.
A bankruptcy lawyer can give you peace of mind by removing the burden from your shoulders. Some cases do not require bankruptcy to be filed right away, giving you time to address the problem. The lawyer will provide you with rational advice that allows you to maintain control until the time comes to file your bankruptcy petition.
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