Category Archives: Business Backruptcy

Things to consider about business bankruptcy

Bankruptcy is a legal proceeding for a business that is unable to pay outstanding debts. The process begins with a petition filed by the debtor. Once the bankruptcy proceedings are completed the debtor is relieved of the debt obligations incurred prior to the filing for bankruptcy.

Bankruptcy-Court1In the United States, filing of bankruptcy is covered by the several chapters of the bankruptcy code, like Chapter 7 which covers the liquidation of assets, Chapter 11 involves “reorganizations or company or individual” and lastly, Chapter 13 which tackles debt repayment with lowered debt covenants or payment plans.

Before filing a petition for bankruptcy, there are certain things that you need to consider, here is a short list of those things:

1. Assess the Relief Needed

You, as business owner must assess the health and future of the business. First, you need to identify the existing assets and liabilities of the corporation. You need to know if the business will still survive if debts will be restructured. Choose among the mentioned chapters shall be appropriate with the current status of your business.

2. Strategic Planning

You need to be realistic about the benefits of reorganization. Chapter 11 of the Bankruptcy code offers benefits which include the ability to modify pre-existing debts to extend maturity dates or lower interest rates or to reject leases or contracts that are not profitable anymore. In creating a strategic plan for reorganization, business owners must assess what appropriate changes shall take place in the operations, management, or debt structure in order to sustain the running of the business.

3. Keep Accurate Financial Records

You should keep accurate records of your income and expenditure and all other business transactions. Do not let bad financial record keeping become a hindrance to a successful bankruptcy petition. If the company’s records are scarce or inaccurate, some level of pre-bankruptcy planning may be appropriate to begin accurate record keeping and the employment of an accountant may be necessary. Failure to keep up to date information may become a hindrance for you in the successful filing of your bankruptcy petition.

4. Develop a Budget

After the filing of bankruptcy, it will often seek to use some of its cash flow for operations. To the extent that cash constitutes and may sometimes require “cash collateral”. Under the bankruptcy code,  “Cash Collateral” may include business accounts, inventory and other collateral such as post petition proceeds, products, offspring, rents, or profits that are subject to a properly perfected creditor’s lien.  However, “cash collateral’ cannot be used without the creditor’s consent, or the Bankruptcy Court’s permission.

5. Evaluate Personal Finances

You must consider the impact of business bankruptcy on your personal finances. A personal bankruptcy may be appropriate or temporary injunction relief may be an available remedy to the owner while the business reorganizes.