The current economic climate is extremely tough for small-business owners, and many companies are being eaten up by ever-increasing interest rates and tough competition on the marketplace. If you are the owner of a small business that is struggling, you may have to file for bankruptcy to clear your debts and get a fresh start. Many people don't fully understand bankruptcy, so to help you with this, below are three things to remember if you are considering filing for bankruptcy:
Remember That Bankruptcy Can Give You a Clean Start
For many small-business owners, admitting defeat is difficult, and they would rather fight tooth and nail until the very end. However, as noble as this may seem, it can often lead to stress and anxiety problems when the owner realizes that fighting for survival can be an extremely cruel experience.
Therefore, in some cases, it may be best to cut your losses and start with a clean slate. Remember, bankruptcy isn't the end of the world. For many small-business owners facing insolvency, bankruptcy can seem like a bottomless pit that they will struggle to claw their way out of. Don't think like this. Of course, bankruptcy is a difficult process for anyone to go through and should be taken seriously. But the truth is that bankruptcy can offer struggling business owners a fresh start and the chance to start piecing their life together without the added stress of having to run a failing company.
Remember Not to Hold on to Rental Property
If your company leases commercial equipment for the business to use and you have decided to file for bankruptcy, make sure you return this rental property as soon as possible. You should make every effort to return this property before you file for bankruptcy, regardless of the contract length you agreed to when you first rented the property. This will ensure that you are able to close your contracts without having to wait for the court to do so on your behalf, which could affect your bankruptcy settlement process.
Of course, the majority of hire companies will bill you for the early termination of your contract. You don't have to worry about this; these debts will be discharged during the bankruptcy process, so long as you have returned the items to the respective companies. It may seem irresponsible to default on your contract, and many small-business owners will make every effort to clear these debts before filing bankruptcy.
However, you have to remember that filing for bankruptcy is a process to help get you back on your feet. Worrying about seeing out contracts will only add unnecessary stress during this difficult time. Rather, it's best to hand back the property, explain the reasoning behind your early termination, and move on with your life.
Remember to Sell Non-exempt Property Before Filing for Bankruptcy
If you decide to file for Chapter 7 bankruptcy, you will lose all of your company's non-exempt property once your declaration has been accepted. This includes any business vehicles, purchased offices, storage space, and anything else that is deemed "non-essential" by the courts.
Watching the courts divide up your assets to sell on your behalf can be difficult. No small-business owner wants to see the fruits of their labor be taken from them because they can't pay their debts. Therefore, you should consider taking the initiative and selling some of your company's non-exempt property before filing for bankruptcy. This gives you the initiative when it comes to selling your company's property, ensuring your property is not auctioned off at a discount by the courts. After you've sold the property, you can then use the proceeds of the sales to pay guaranteed loans or bankruptcy fees.
It's important to remember, however, that you can't use the proceeds of these sales to increase your equity on exempt property. For example, you should never use the money from selling non-exempt property to pay your home mortgage. Your family's home is protected under law, and if the courts see that you are trying to transfer money from your non-exempt to exempt properties, you may face criminal charges.
For more information and advice, talk with a bankruptcy attorney, such as those at Morrison & Murff.