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Clear signs that you need to file for bankruptcy for your business

On Behalf of | Jun 13, 2023 | Firm News |

Business owners are often reluctant to consider filing for bankruptcy. Their business may be their sole source of income and usually represents a considerable investment of their time and money. Some may ignore signs that their businesses are struggling until it’s too late to save some of their assets. 

Here are some clear signs you should look out for to determine if it’s time to file for bankruptcy.

Mild warning signs 

Some warning signs don’t automatically mean that a business is in trouble. Instead of filing for bankruptcy immediately, business owners can make a few adjustments in these cases — like reducing their overheads and raising their prices — and possibly get their businesses back on their feet. 

However, you should watch out for the following mild signs that your businesses may soon be in trouble:

  • Inability to pay vendors and invoices on time 
  • Utilizing your overdraft protection and line of credit frequently 
  • Failure to pay your employees on time 
  • Infusing the business with personal funds or savings 

Moderate warning signs 

If you aren’t able to get your business back on its feet after recognizing mild warning signs, you may start to notice moderate warning signs. At this point, you should make a realistic assessment of your business’s viability and profitability and decide whether to make drastic changes or close the business. 

Some of these moderate warning signs include: 

  • Creditors have turned over their debts to collection agencies
  • Constant complaints from customers about their business’s inability to meet deadlines and obligations
  • Failure to pay for essential expenses like utilities, insurance, licenses and corporate bonds, resulting in their suspension or cancellation
  • Revocation of lines of credit with credit banks, vendors or unions
  • Suppliers refusing to provide supplies and materials
  • Using personal property, such as a residence, to secure new loans to help pay the business’s operating expenses

Major warning signs 

Once a business owner ignores the moderate warning signs of their business in distress, these major warning signs are likely to plague the business. At this point, it’s recommendable to consult a bankruptcy attorney to remove personal liability and start filing for bankruptcy. 

Some of these signs include:

  • Unpaid payroll, sales and trust taxes 
  • Unpaid property taxes and income taxes, with a threat of levy 
  • Lawsuits from creditors 
  • Eviction and foreclosure from the business premises 
  • Relying on payments from new accounts to pay former accounts 
  • Withdrawing money from retirement savings accounts, such as 401 (k), to save your business from insolvency