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Business Bankruptcy Law

Business Bankruptcy Law

These days, many business owners are facing severe financial difficulties and are looking for help for their struggling business. You may even be considering filing a business bankruptcy. Businesses can file under chapter 11, 7 or 12 of the United States Bankruptcy Code. Before you file bankruptcy, here are some things to consider.

Make sure your taxes are current. Always, always, always pay all of your taxes on time. Payroll taxes are withheld from your employees’ paychecks and it is important for your small business to make sure these are paid correctly. The IRS and your state’s tax authorities can hold you personally liable for these taxes and can, and likely will, assess penalties for non-payment. Also, bankruptcy proceedings will not likely make these debts go away.

If your business is in a severe financial crisis, you may be tempted to go to a bank and apply for a new loan using false information. Don’t give in to this temptation. Loans that are granted based on false information are loans obtained by fraud, and you may become personally liable to the creditor for these loans.

Consider cutting your spending. If you have come to the point where you realize that you don’t have enough money coming in to pay all of your costs, you should cut your expenses down to the bare minimum. Some of the best help for business is often found by simply trimming the excess from expenditures. You should plan out your short-term financial strategy, including a list of all money that is owed to your business. Lastly, be sure to keep paying the bills that need to be paid, but work with suppliers and creditors to defer expenses to a later date if possible.

The laws of business bankruptcy will look into your history of paying creditors and not be kind if you have made a habit of paying some creditors over others. If your business is forced to file for bankruptcy, the bankruptcy court will look into all payments made to creditors in the past year to see if your business gave some creditors preferential treatment. If you are still outside of bankruptcy proceedings, you may legally pay one creditor with an unsecured loan ahead of others, but special treatment is given to secured creditors (creditors that hold property as collateral).

Some business owners are so desperate for help for their business that they transfer business property to friends and relatives in an attempt to hide these assets from creditors. Many creditors are quite used to tracking these transactions down and reclaiming the property, however. In addition, doing so may land you in legal trouble in the form of civil or even criminal fraud charges. Don’t do this. If you have business bankruptcy questions, please call a bankruptcy lawyer before you start moving things around.

Because of the special nature of utility companies as well as landlords, you shouldn’t worry about these two providers during a bankruptcy. A utility company will not shut off your power if your business files for bankruptcy and may only require you to post a deposit to keep the services running. In addition, even though your commercial lease may contain a clause granting the landlord the power to evict if your business files for bankruptcy, he or she cannot normally do so if you continue to pay your rent during the bankruptcy proceedings. These clauses have generally been found invalid unless the tenant is a sublessee or assignee.

If you have taken a loan out from a bank, it would be wise to keep your cash (checking and savings) in other locations. Many loan agreements contain clauses that let banks take money directly from your accounts without notice if you are having financial difficulties, called a “setoff.” If you’re having cash flow problems already, the last thing you need is to wake up to discover that the bank has emptied your checking account.

Some businesses often lease property to use in their everyday operation. If your business is using such property, sit down and carefully decide if all of the property is strictly necessary for your business to continue to run. If something is non-essential, consider returning the property to the company that leased it to you. If the property you return is worth more than you owe on the remaining lease, this item will be discharged in bankruptcy. However, if you do need to keep the equipment, be sure to continue making regular payments as this item will not be discharged in a bankruptcy proceeding.

This is important. If your business is looking like it will be heading to Chapter 11 reorganization or if you will have to file Chapter 13 bankruptcy, you may find it hard to insure your business. Many insurance companies frown on giving insurance to businesses in such proceedings. This is why you will want to renew your insurance contract before starting any type of bankruptcy proceeding. The insurance company cannot cancel your plan if you continue to make timely payments.

There are many pension plans that do not allow you to remove any money from the account. Other pension plans allow you to remove money, but assess a very hefty penalty for doing so. In addition, the plan could be cancelled, meaning that any deductions would be canceled, all the assets in the plan distributed, and all taxes and penalties applied. Yet other plans allow owners to borrow from the plan for specific purposes, but with restrictions. Only choose this option after careful consideration: if you fail to pay the plan back, you will probably face penalties and may have to pay taxes on the money withdrawn.

Business Bankruptcy Lawyer Free Consultation

If you have a business bankruptcy question, or need to file a business bankruptcy case, call Ascent Law now at (801) 676-5506. We can help you now. Come in or call in for your free initial consultation today.

Michael R. Anderson, JD


Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506