Imagine for a moment you are a business owner walking into work on Monday morning and your assistant hands you a lawsuit you just receive. In some cases, you may need to consult with a bankruptcy lawyer. The question is: Would a bankruptcy really be the right thing to do for my business?
There are several questions you should ask yourself and your attorney:
- Am I prepared to lose control of my business? An incorporated business only has two options: file a Chapter 7 Bankruptcy and liquidate everything, or a Chapter 11 Bankruptcy which reorganizes the business. In both cases, you are giving your creditors control of your operations, by either liquidating the business assets in a Chapter 7, or by allowing your creditors to dictate how you run your business in a Chapter 11.
- Can this lawsuit be settled? A creditor knows that lawsuits can take several months to resolve. They may be willing to compromise the amount they are suing for in order to settle now. If you believe your business has the ability to pay some of the debt, you should consider litigating the suit with the hopes of settlement.
- Can my business really afford to file bankruptcy? You should have a discussion with your attorney about all possible fee scenarios, because Chapter 11 Bankruptcy can be expensive. If your business is not in a position to bear these attorney fees, then maybe Chapter 7 or some other option is better.
- What will my business look like after the Bankruptcy is filed? If you file a Chapter 11, it is very important to remember that you will not be permitted to operate in the red for very long. In addition, any post-filing credit is paid at a premium and must be paid in full before you can exit the bankruptcy.
- What if I personally guaranteed some of my business debts? Many business owners do not realize they personally obligated themselves on their business loans and credit. Unless the business itself owns significant assets, most all banks require you to personally guarantee any credit extended to the business. You may need to consider filing for personal Bankruptcy to protect your personal assets and discharge these debts.
These are some of the more important questions to ask when considering your options, and determining whether a bankruptcy is right for your business. It is important to find an experienced bankruptcy attorney who can help you plan the right path to get back on track.
Brian D. Flick and Amanda M. Burgess