No business owner wants to go bankrupt, but in some cases, filing for bankruptcy might actually allow you to get your situation under control while your doors remain open. It's a way to come up with a payment plan for your creditors without having to go out of business. If you are thinking about going down this route, though, you'll want to be smart about the decisions you make in the run-up to the filing. Here are some tips to remember.
Payments Made During the Last 12 Months Are Key
When you file for bankruptcy as a business owner, most judges will want to look at your books for at least the last 12 months. If they see you making any unwise decisions, this could hurt your chances of coming out of bankruptcy with the plan that you want. For example, if it's revealed that you paid yourself a big bonus to your personal checking account a few months before filing, this is not going to go over well. The judge may require you to pay back any payments like that before the bankruptcy can move forward.
Don't Play Favorites
In addition to watching how much you are paying yourself during this time period, you should also be cautious about making extra payments to close associates or friends and family members. If you are paying back a loan to a close friend, for example, other creditors could claim that you are giving preferential treatment or making "preference payments" to just that one creditor. The bankruptcy court might have the right to try and reclaim that money from your friend. You might feel like you should pay off those closest to you first, but in reality, doing this could actually drag them even further into a financial mess.
No Shopping Sprees or Last-Minute Loans
Another mistake some make before filing for bankruptcy as a business is to go on a spending spree with the corporate account. Trying to buy new office furniture or a new company vehicle right before filing is not a good idea because it will look like you are trying to defraud the court. Any last-minute purchases or additional loans you take out will likely not be discharged even if your bankruptcy is approved.
If you are going to file for bankruptcy as a business owner, be diligent about your books and which payments you are making during the prior year. A poor decision now could end up costing you in court later on. For best results, contact a firm that offers bankruptcy attorney services for more information.