The image source is Pexels.
Declaring bankruptcy is usually upsetting, demanding, stressful, and above all, a difficult and daunting process. Of course, there are many reasons that may lead to a bad financial situation in a business, and in some cases, they are beyond the control of the business owner. Even so, business owners who understand how to go about the process of filing bankruptcy, and what to do afterwards tend to experience less stress and financial ruin. If you have to declare your bankruptcy this year, follow the tips below to increase your chances of having an easier experience and a better future.
Know the most ideal type of bankruptcy for you
After deciding to declare bankruptcy, you need to select the right type of bankruptcy depending on your goals and the nature of your business. The most common options you should consider are Chapters 7, 11 and 13. If you choose Chapter 7 bankruptcy, you should expect everything to get liquidated and your business to stop operating. This option is considered the simplest, as it’s less time-consuming and very inexpensive.
If you don’t want to lose your business but require assistance to get your finances in order, Chapter 13 would be more ideal. Besides keeping your business, this option allows you to get into a repayment plan to pay off your creditors. This option would be great if your business generally has a high asset value and income, and low or manageable amounts of debt.
Chapter 11 is often reserved for the larger companies and corporations. It’s usually very costly and time-consuming, so neither you nor your creditors would want to consider it.
You need to negotiate your debt
You need to try and negotiate your debt with your creditors by offering to sell some assets before you officially file for bankruptcy. Creditors are generally more willing to negotiate because it gives them the opportunity to lose less in a bankruptcy situation. If you decide to go ahead and file for bankruptcy, it means that they’ll receive less cash. Negotiating with your creditors can help you pay less debt than you owe, save your business and give you the chance to restore your operations.
Avoid making preference payments to your creditors
If you received an amount of cash from a business associate, a relative or a friend, it may seem like a good idea to repay a bit or all of it before declaring bankruptcy. That’s a bad idea because the bankruptcy trustee has to investigate all the payments you made for up to a year before you filed for bankruptcy. This is usually done to ensure that no creditor was given an unfair advantage. If they discover that you made any preference payments, the trustee will try to take back the payments and divide them equally among the creditors. If your friends, associates or relatives fail to come up with the cash that you paid them, they can be sued.
Avoid paying yourself
When you file for bankruptcy, you’ll start being treated like an insider creditor. That means that making any form of payment to yourself, such as a bonus or a loan you gave to the business, the bankruptcy system will consider it a recoverable preference payment. In some cases, it may be considered bankruptcy fraud that can put you in jail. Avoid taking money out of your business within the year prior to declaring bankruptcy.
You can consult a credit counseling agency or a debt counselor
Like any business owner going through the debilitating bankruptcy situation, you may be uncomfortable negotiating with the collection agencies or creditors. Instead of stressing yourself over the issue, you can contact a debt counseling agency or an experienced debt counselor to help you repay your debts.
Look for ways to boost your brand after bankruptcy
According to Forbes, bankruptcy can help a business turn its name around and even enable it to resume its operations and eventually emerge stronger than it was previously. After bankruptcy, you can change your failing products by listening to your customers, implementing better leadership to create a fresh perspective or attitude towards your company, and even changing your overall business strategy. Bankruptcy doesn’t always mean that you need to get out of business. You can look at it as a way to help you regroup and start afresh.
Although bankruptcy is always considered a disaster to businesses and individuals, how you handle it can make a big difference. If you have to file for bankruptcy, follow the tips above to get the most out of the process and minimize the negative impact it may have on you as a person.