Don’t Be Scared When Contemplating A Business Bankruptcy Petition

By Tim T. Warner

The main reason most businesses file for a bankruptcy is because they either need more time to pay their debts or they desire to close up shop for a variety of reasons (unprofitable products, impossible-to-repay debt). Businesses hire bankruptcy attorneys to take charge of the bankruptcy process, which could fall either under Chapter 7 or Chapter 11. Chapter 7 denotes liquidation, while Chapter 11 denotes reorganization. When the entire business bankruptcy process is through, the business becomes free of debts. Here are a few facts that you should know about business bankruptcy:

1. There are debts that fall under priority debts. You cannot just avoid paying these debts or pay them in parts. Business owners are held personally responsible for such debts, which include taxes, child support, alimony, student loans, criminal penalties, court fines, and debts resulting from driving under the influence which caused injuries to other people. With priority debts, even the best business bankruptcy attorneys could not help you.

2. Only those debts that were acquired prior to the filing of bankruptcy can be covered by the bankruptcy petition. Those debts that were obtained after the date of the filing of the bankruptcy petition could not be covered by the bankruptcy protection laws.

3. Business bankruptcy attorneys advise their clients to list all their debts in the relevant schedules. The business bankruptcy process cannot relieve debts that are not stated.

4. If it be found that assets, including money, were received by the business owner fraudulently, then the court would not release the debts.

5. If the bankruptcy court finds out that the business owner has acted dishonestly, then it can refuse debt discharge. Example of dishonesty could be lying, falsifying records, destroying property or records, destroying assets, disobeying court orders, etc.

6. Business bankruptcy attorneys can only help obtain a Chapter 7 discharge once in 8 years.

7. When the court discharges debts that are secured by an asset, like lien on an office building, it does not necessarily mean that the debt has to be paid in cash. The creditor holding the lien can then possess the property and sell it off.

8. In some cases a debtor may want to pay a debt even after it is released. For instance, if a business owner has obtained a loan for the purchase of a car and this loan has been discharged by the court, then the business owner can enter into a “Reaffirmation Agreement” with the lender and continue paying his debt (mainly because he needs the asset. The court supervises this type of agreement.

These are a number of facts you must be aware of before approaching or choosing from the finest business bankruptcy attorneys.

If your organization is in debt and you are thinking of declaring bankruptcy, seek the advice of a bankruptcy lawyer who has expertise working with chapter 11 bankruptcy. You might also wish to consider additional options such as business debt consolidation or debt management for small businesses.

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Topics: Bankruptcy | Comments Off

Tags: Bankruptcy, bankruptcy law, Business, corporate finance, debt, Debt Consolidation, debt management, Finance

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