How to Protect Income When a Small Business Files Bankruptcy
December 7, 2011
Are you a small business owner who anticipates filing for bankruptcy protection? Reorganization, permitted under bankruptcy laws, may allow your business to continue under more favorable terms. You have the opportunity to renegotiate contracts to give you a better deal. But, do you know how to protect your business income through the bankruptcy process?
If you’re like most small business owners, you need your business’ future income to make your fresh start a success. It may surprise you to know that a qualified bankruptcy attorney may advise you to take a vacation before your business files bankruptcy, instead of keeping your shoulder to the grindstone.
Why? It seems counterintuitive. After all, if you’re contemplating bankruptcy, you need all the income you can get.
Here’s why. Any income that is owed to you, when you file bankruptcy, will be taken by the bankruptcy trustee and will be given to your creditors. So, don’t create excess income. Instead, let any income pay fixed expenses such salaries, rent, insurance, mortgage, equipment leases, and memberships.
Wait until after you filed bankruptcy to generate income. You need that income to make a go of it, after bankruptcy. Here’s how it works.
As part of your small business bankruptcy petition, you must provide details on all business assets, accounts receivables, and unbilled work in progress. The bankruptcy trustee will try to collect monies from accounts receivables using a demand letter; demand letters are successful in collecting monies already owed to you. The trustee gives the money to your creditors. (The trustee will also try to collect unbilled work in progress; collecting for unbilled work isn’t usually successful until the work has been completed.)
Don’t be afraid to take a break; if your business keeps functioning as is, you’ll lose accounts receivables to your creditors; this means that you won’t have that income to keep your business going when you come out of bankruptcy.
If you notify your clients ahead of time, they are likely to understand. Explain that because of the current economic situation, your business needs to reorganize. Further explain that their work will get done and give them a date when it will be completed. Set appropriate expectations.
Your qualified small business bankruptcy lawyers can give you exact timing of work stoppage and explain how to use any income that comes in before filing bankruptcy, how to communicate with your clients, and how to use bankruptcy’s fresh start to have a successful future.
Where Do I Get Help Filing Bankruptcy?
Bankruptcy is a very specialized area of law; be sure your attorney focuses his or her practice on bankruptcy. We focus our practice on bankruptcy law and help people just like you. You can reach us at 513-793-6555 or Thomasjr@geygan.com.
We will gently walk you through the bankruptcy process, answer your questions, analyze your case, and aggressively fight for your legal rights. We look forward to your call or email.