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What to avoid when your company files for bankruptcy

On Behalf of | Apr 6, 2023 | Business Bankruptcy, Chapter 7 |

Sometimes when business owners are going through bankruptcy, they end up making errors that can affect the outcome of the filing. Business owners, particularly small to midsized businesses where the owners are often the operators, take the financial failures of the company to heart and try to minimize the issues by omitting information, hiding assets, or giving away things in order to retain them. These actions can prolong the bankruptcy procedures, and the court can dismiss the claim, file criminal charges, or levy hefty fines. Even if a company does not intentionally try to hide things from the court, it is responsible for submitting complete and accurate information.

There are some things businesses should avoid when claiming bankruptcy. Honesty, awareness, and being proactive will lessen the burden of filing and speed up the entire process.

Lying about creditors

If a company is filing for Chapter 7, it must disclose all assets and income so the court can determine its capacity to pay off its creditors. A trustee appointed to the case will have access to the records, so trying to hide assets or not declaring them will probably be discovered. Never omit a creditor to keep an open line of credit for use. Credit card companies have centralized information, so they will know when a business has filed for bankruptcy.

Hiding your assets

You might think that you can give your car to a relative or put a boat in a friend’s name, but transferring ownership to someone else right before filing for bankruptcy is a red flag. Those transfers show up on title searches and other documentation. If the court suspects that assets are given away right before filing, you will most likely have to surrender that asset to the court to help repay your creditors.

Taking on debt right before filing

Some businesses take out a loan or run up company credit cards right before filing for bankruptcy, assuming that debt will be discharged. In most cases, recent debt incurred within ninety days of the filing is not included in the bankruptcy claim. This clause means that a business will still owe the debt after the filing.

Transparency and honesty are vital when filing for business bankruptcy to ensure the proceedings are completed without additional penalties, charges, or surprises.