Disclaimer: If you’re considering to apply for business bankruptcy, the following information only serves as a general guideline as to the legal aspect of filing for business bankruptcy. It is not, however, tantamount to actual legal advice regarding the matter. To know more about the legal nature of filing for business bankruptcy, it’s best that you approach an experienced attorney who can help you in this situation.
Business bankruptcy is a process which can provide relief when you’re unable to pay back your debts. It is not simply saying that you’re financially broke and the court will declare your business as bankrupt. In fact, there is a complicated, long process that you have to follow for the filing to be successful. If you think that your business is struggling with excessive on hand, below are the legal considerations you have to take note of when you apply for business bankruptcy:
1. Get A Licensed Attorney: Considering the idea of applying for business bankruptcy is a matter of choice on the part of the business owner.
● If you know that your business needs to close down because it’s losing, filing for bankruptcy can be the best remedy. In this kind of situation, remember that you have the option to speak with an experienced attorney who specializes in business bankruptcy cases to help you in every phase of the proceeding.
● When getting a lawyer of your choice, you should make sure to check whether they are knowledgeable enough to represent you in bankruptcy cases.
● Try to verify your attorney’s area of expertise so that they’ll be able to defend you properly in court and you’ll subsequently have greater chances of getting a favorable final judgment in court. Also, keep in mind of your attorney’s location as some laws vary depending on where you reside.
2. Filing of Bankruptcy: There are different forms of bankruptcy you can consider as your final last recourse in paying off your debts.
● Chapter 7 Bankruptcy is considered the most common type of bankruptcy, and involves a court-appointed trustee that distributes your assets in order to pay off debt to your creditors.
● Considered liquidation bankruptcy, its best to work with an attorney who specializes in Chapter7 Bankruptcy cases if you choose this route.
● Take note that Chapter 11 Bankruptcy applies to corporations and even small business. Under this form of bankruptcy, your business is given the opportunity to reorganize and propose a profitability plan to regain your revenue while temporarily holding your creditors’ action to collect your debts.
● Remember that filing of a petition for Chapter 11 Bankruptcy in court marks the beginning and the automatic stay of all actions for collections by the creditors. That way, you’ll be provided time to draft your reorganization plan and restructure a more flexible repayment terms for your debts payments.
3. Consideration of DIP Financing under Chapter 11 Bankruptcy: When you file for Chapter 11 bankruptcy, you can be under the coverage of DIP Financing(Debtor-in-possession financing).
● DIP financing is financing available for businesses which allows them to retain control over their assets and continue their operation while the business is under the reorganization process as provided by chapter 11 bankruptcy.
● Remember that DIP financing is essential as it gives your business a lifeline to reorganize, stabilize operations and improve your chances of survival from too many debt obligations.
4. Bankruptcy Paperwork Is Public In Nature: When you have to apply for business bankruptcy, keep in mind that paperwork will be made public.
● Applying for business bankruptcy implies that you have to make your financial information accessible to the court to examine and verify.
● Remember that bankruptcy filings are public because anyone who wants to look at your financial information can do so.
● Also, once you’ve filed for business bankruptcy, your name is published in the local newspapers and online.
● Take note that bankruptcy paperwork may strip you out of your privacy during and throughout the process.
5. Bankruptcy Filings May Require Excessive Payment Of Fees: When you apply for business bankruptcy, you’re also preparing yourself for the excessive amount of fees to pay for the whole process.
● Applying for bankruptcy means that you’re duty-bound to the orders of the court and your lawyer. It means that you have to comply with the monetary demands of your attorney including the payment of attorney’s fees.
● You also have to understand that bankruptcy proceedings in court may be costly depending on the circumstances. However, in most cases, bankruptcy disputes also require payment of court fees by the one seeking for the declaration of business bankruptcy.
6. Be Prepared For The Court Meetings With Creditors: Bankruptcy cases require court meetings for the proceedings to prosper.
● During the meeting with your attorney, it’s important that you disclose everything to them so that they can portray your financial situation for you. Don’t fear to open up everything about your finances as they are there to defend you.
● Take note that you have to prepare for your first court meeting where you and your lawyer will face your creditors for questioning.
● Remember that your court meetings are sworn and recorded that’s why you have to be upfront in sharing your financial problems.
● Also, keep in mind that creditors can file a lawsuit against you to challenge your bankruptcy application for them to receive the full amount of debt you owed.
If you think your business is in a bad financial situation, take note of the above legal considerations when you decide to apply for business bankruptcy. Although bankruptcy can be a financial alternative when the business is losing, you still have to identify whether bankruptcy is the most suitable option you can take for your business.