Many business owners are facing a variety of challenges that make it difficult to continue operating profitably. If your company's debts are outpacing its profits, filing bankruptcy is one option for managing the situation. However, here are three reasons you should hire an attorney to help with the process rather than do it on your own.
Identify the Right Bankruptcy Chapter to File
There are three types of bankruptcy business owners can apply for to help them deal with their debts. Choosing the correct one for your situation can be challenging, though, because you have to take several factors into account, such as the kind of business you are running, your business structure (e.g. sole proprietor, corporation), and the type of debt you have (e.g. secured, unsecured).
For example, a Chapter 7 bankruptcy is a good option for sole proprietors who operate service businesses with little to no assets. You can use exemptions to prevent the few assets you do own from being sold off and the discharge will eliminate any personal liability for debts, ensuring creditors can't come after the property you own outside the business.
On the other hand, Chapter 7 is likely not the best choice for a corporation that manufactures products, because there are no exemptions to protect property among other reasons. The trustee will sell everything, including the business itself, to pay creditors. Unfortunately, the trustee will price items for a quick sale, which is typically vastly less than what the owner could get selling the assets themselves.
A bankruptcy attorney can analyze your situation and recommend the type of bankruptcy that addresses your specific needs, increasing the probability you'll achieve the outcome you want.
Minimize Personal Liability
While bankruptcy can eliminate business debt, there are circumstances where the responsibility for paying those bills will simply shift from the company to the owner(s) or shareholder(s). For those involved in legal partnerships or who own corporations, the trustee may have the authority to go after your personal assets depending on how the bankruptcy is handled.
For instance, all people involved in a partnership are personally responsible for the business' debts and, if there isn't enough money to pay creditors, the trustee will liquidate their homes, cars, and bank accounts to pay any leftover balances. To avoid this, you would have to file consumer bankruptcy to eliminate your individual liability for the business' debts.
Filing bankruptcy for a business can get complicated, and you could easily end up paying more money to your creditors than you need to if you don't know how to protect yourself. Thus, it's best to hire a bankruptcy attorney who knows the ins and outs of the system and can help keep creditors away from your personal assets.
Fight Back Against Creditor Overreach
Creditors don't like losing money and will fight tooth and nail to ensure they get as much cash from you as possible. The strategies they engage in will vary depending on the type of business structure you have and other factors.
People who own corporations, for instance, may be subjected to attempts to pierce the corporate veil by creditors. An incorporated business is its own entity and is responsible for its own debts, meaning the owners cannot be held personally liable for them. However, creditors can challenge the corporate veil and, if they win, the veil will be lifted allowing them to go after the corporation's owners directly for the money owed.
Protecting yourself requires knowing how to adequately respond to these types of legal claims when they arise in your bankruptcy. A knowledgeable bankruptcy attorney can anticipate these types of creditor moves and use a variety of legal maneuvers to help you defend against them.
For more information about filing business bankruptcy, contact a local bankruptcy lawyer.