11 Bankruptcy Mistakes and How to Avoid Them

August 16, 2016

The 11 Most Common Chapter 11 Bankruptcy Mistakes Small Businesses Make

1. Choosing the Wrong Attorney

Choosing an attorney with little bankruptcy experience or one with too many cases is a mistake you can make when filing for bankruptcy. Almost any attorney can claim to understand bankruptcy laws and the complex court system, but have they actually had any cases? You need to be certain that the attorney you choose is able to handle any complications that may arise, or isn’t too busy to work your case.

2. Not Giving Yourself Options

Make sure to hire an attorney who provides options besides bankruptcy. A good attorney will present all of your options, even it means losing your business. All alternatives should be presented so you can make the correct choice for your business.

3. Filing Without an Attorney

Unless you’re an attorney, chances are you’ll make numerous mistakes when filing for Chapter 11. There are different ways to apply the law and to receive the full benefits of filing. You’re best advised to follow an attorney’s advice.

4. Not Understanding and Meeting Bankruptcy Eligibility Requirements

There are multiple requirements that must be met for each Chapter 11 filing. These must be accounted for before you file.

5. Failing to Disclose All Assets

Not telling the judge everything or trying to hide any assets you have can cause your company a world of hurt once discovered in a bankruptcy. Not only will it delay your case, but you could be charged with fraud and possibly face criminal charges.

6. Not Listing All of Your Creditors

Be sure you’re not only aware of all of your creditors, but make sure to list them all too. Many people don’t realize you can continue to voluntarily pay a creditor during and after a Chapter 11 bankruptcy. This may help to maintain a vendor-supplier relationship. Best practice is to make your intentions and desires clear and then follow your attorneys’ advice. At a minimum result, failing to disclose a creditor will delay your case.

7. Not Being Prepared

Filing for bankruptcy takes time, energy and paperwork. Make sure you’re prepared. This seems rather self-explanatory, but remember you’re running your business and while filing for bankruptcy. As a business owner, you must be prepared to take the time to locate the documentation requested of you. Ideally, you’ve been maintaining excellent records through the years and will have them readily at hand.

8. Not Being Flexible

Remember to be flexible enough to negotiate a deal. Chapter 11 requires that all parties make sacrifices. As the business owner, you’ll need to have patience and work with your attorney to find common ground with your creditors.

9. Waiting to File

The only thing holding you back from potentially saving your business is you. While you fret over what to do, you’re increasing your debt and losing more of your business. If Chapter 11 is agreed as the best course of action after discussion between you and your attorney, take it.

10. Failing to Locate a Debtor in Possession (DIP) Financing Solution at the Time of Initial Filing

Traditional lending is generally not an option for companies going through Chapter 11 bankruptcy. Scale Funding helps businesses in bankruptcy situations get the cash flow needed to stay afloat. Factoring doesn’t create debt like a loan. It allows your company more flexibility to meet your business’s needs.

11. Failing to Follow Through on Your Repayment Plan

Enough said. Once a plan is agreed upon by all parties, stick to it. If you’re unable to, revisit your lawyer right away to see what the next action is that must be taken.

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Author: Angelique C.

Sources:
ForBankruptcy.com
JonBClarke.com
CapCityLaw.com
GFCIB.com
JoeLaresty.com