Biggest Mistakes Businesses Make before Filing for Bankruptcy
Written by Robert DeMarco
No one ever sets out to file for bankruptcy. It’s always a last resort and usually something that businesses only consider after making mistakes that have led them to this point. Unfortunately, many businesses make common mistakes before filing for bankruptcy that worsen their situation. In this post, we’ll explore some of the biggest mistakes businesses make before bankruptcy and offer tips on avoiding them. Stay tuned for more bankruptcy advice in the future!
What is Businesses Bankruptcy
It’s not uncommon for businesses to go bankrupt. It happens more often than you might think. But what exactly is business bankruptcy? Businesses bankruptcy is when a business can no longer pay its debts. This can happen for several reasons, but usually, the business is struggling to make enough money to cover its costs. When a business declares bankruptcy, it’s often because it’s unable to repay its creditors. Creditors are the people or organizations to whom the business owes money. When a business declares bankruptcy, creditors may be able to get some of their money back through liquidation. Liquidation is when the business sells off its assets to pay its debts. However, not all businesses that declare bankruptcy end up going through liquidation. Sometimes, businesses can reorganize their debts and continue operating. Whether a business declaring bankruptcy can stay open or not depends on several factors, including the type of bankruptcy it files for and the strength of its business model.
The different types of Business Mistakes Make before Filing for Bankruptcy.
There are plenty of mistakes that businesses make before filing for bankruptcy. However, the most common mistake is not seeking professional help soon enough. Some decide to file too late, while others don’t take the time to understand all their options.
Many business owners believe that they can handle the bankruptcy process independently, but this is rarely the case. Without a professional’s guidance, it’s easy to make costly mistakes that could jeopardize the success of your bankruptcy filing. The sooner you seek help from a bankruptcy attorney or accountant, the better off you’ll be.
Another mistake businesses make failing to plan for and manage their post-bankruptcy operations. Just because you’re no longer in debt doesn’t mean you can relax and coast along without a plan. It would be best to have a clear idea of how you’ll operate post-bankruptcy and what steps you’ll take to ensure your business’s success. Otherwise, you could find yourself right back where you started: in financial trouble and struggling to stay afloat.
If you’re considering bankruptcy for your business, avoid these common mistakes and seek professional help as soon as possible. With the right guidance, you can get through this difficult time and become stronger on the other side.
Top Mistakes People Make Filing Bankruptcy
Working With a Bankruptcy Mill: A bankruptcy mill is a company that advertises heavily to get bankruptcy clients but then passes them off to inexperienced paralegals or non-attorney staff members. These staff members may have little or no training in bankruptcy law, which can be complicated and technical. As a result, they may not be able to advise you on your options properly.
Hiring an Attorney Who Specializes in Another Area: Many attorneys practice multiple areas of law, but that doesn’t mean they’re experts in all of them. When it comes to something as important as bankruptcy, you want an attorney specializing in this area and staying up-to-date on the latest bankruptcy laws. Otherwise, you could end up with inaccurate or outdated advice.
Hiring a Paralegal Service: While some reputable paralegal services can help you with your bankruptcy case, many are not qualified. In addition, some of these services may try to take advantage of people who are desperate for help by charging high fees or offering unnecessary services.
Withholding Information Concerning Debt: One of the worst things you can do when filing for bankruptcy is withheld information about your debts. Not disclosing all of your debts can result in those debts not being discharged, which means you’ll still be responsible for them after your bankruptcy case is over. It can also lead to criminal charges being filed against you.
Withholding Information Concerning Assets: Just as it’s important to be honest about your debts, you also need to be upfront about your assets. If you try to hide any of your assets, it could result in those assets being seized by the bankruptcy trustee. It can also lead to criminal charges being filed against you.
Transferring Assets: It could be considered fraud if you transfer any assets before filing for bankruptcy. The bankruptcy trustee could seize the assets transferred and possibly even file criminal charges against you.
Waiting Too Long to File Bankruptcy: Many people wait too long to file for bankruptcy, assuming that their financial situation will improve. However, the longer you wait, the more damage to your credit report and the harder it becomes to get out of debt. If you’re considering bankruptcy, don’t wait – seek help as soon as possible.
Filing Bankruptcy Too Soon: On the other hand, some people file for bankruptcy too soon before exhausting all other options. This can be a mistake because it can damage your credit and make it harder to get financing in the future. Before you file for bankruptcy, be sure to speak with a qualified professional who can help you weigh your options.
Filing for bankruptcy without an attorney: Many people try to file for bankruptcy without the help of an attorney, thinking that they can save money by doing so. However, this is a mistake.
Making Preference Payments: Preference payments are payments made to certain creditors before others. These payments can be considered fraudulent if they’re made before you file for bankruptcy within a certain period. As a result, the preference payments may be reversed, and the creditor may not be paid.
Going on a Shopping Spree Right Before Filing: Many people think they can go on a spending spree right before filing for bankruptcy and then have their debts discharged. However, this is not the case. Any debts incurred within a certain period before filing are known as “incurred debts” and may not be discharged in bankruptcy.
Running up credit card debt: People make a common mistake of running up their credit card debt right before filing for bankruptcy. This is because any debts incurred within a certain period before filing are known as “incurred debts” and may not be discharged in bankruptcy.
Consolidating and transferring debt: If you consolidate your debt or transfer it to another account, it may be considered a “preference payment” and not be discharged in bankruptcy.
Filing for bankruptcy is a big decision and should not be taken lightly. Be sure to speak with a qualified professional who can help you understand the process and your options before making any decisions.
How to Avoid Bankruptcy and Build a Strong, Successful Business
No one likes the idea of declaring bankruptcy, but it’s sadly the only way to stay afloat for some businesses. If you feel like your business is on the verge of financial ruin, don’t panic! You can take some steps to avoid bankruptcy and get your business back on track.
First, take a close look at your expenses. Are there any areas where you can cut back? If you’re spending too much on inventory or office space, now is the time to downsize. You may also want to consider slashing your marketing budget and reinvesting that money into other areas of your business.
Next, focus on increasing revenue. Can you raise prices without driving away customers? Are there any new products or services you can offer? Now is also the time to start looking for new markets and opportunities for growth.
Finally, don’t be afraid to ask for help. Talk to your accountant or financial advisor about ways to improve your cash flow. You may also want to consider taking out a loan or line of credit to tide you over during this difficult time.
No one said running a business was easy, but you can avoid bankruptcy and get your business back on track with a little hard work and perseverance.
Conclusion
Bankruptcy is a difficult decision to make, and it should not be taken lightly. If you’re considering bankruptcy, be sure to speak with a qualified professional who can help you understand the process and your options. You may also want to take steps to avoid bankruptcy by cutting expenses, increasing revenue, and seeking out financial assistance. With a little effort, you can get your business back on track.
Consumer Bankruptcy Lawyer in Plano, Texas
Are you struggling to keep your business afloat? Are you worried about what will happen if you file for bankruptcy? DeMarco Mitchell, PLLC, can help. We’ll guide you through the process and make sure you don’t make any mistakes that could cost you dearly. Contact us today to schedule a consultation.
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