In the midst of the mayhem of managing creditors, regulators, and employees in a distressed situation there exists opportunity. What does filing for and planning for bankruptcy mean? Bankruptcy is about giving the debtor a fresh start, however that does not necessarily mean you need to start again with no resources at your disposal.
Without a doubt, there are a number of pitfalls to be alert for when you begin to contemplate and start planning for bankruptcy filing. These pitfalls apply to businesses and individuals and can cause problems as you enter the legal system.
Receipt of goods, payments to vendors and suppliers, transfers to insiders, and tax ramifications are all impacted when you file. Timing is critical.
Tips for Planning for Bankruptcy
- Consider the appropriate Chapter (7-11-13) of the bankruptcy code to file under. Each has its own unique criteria and ramifications.
- Understand the exemptions – the bankruptcy code provides for the exemption of certain assets either in whole or in part. Most notable are your home and your retirement plans. You need to run the numbers to be able to maximize your assets on exit from bankruptcy.
- Do not draw on retirement assets to fund an insolvent business or to resolve obligations with creditors. Remember these assets are exempt and are often the funding to provide for a fresh start.
- Know your creditors and their relationship with you, secured or unsecured, as well as the balance owed. Know what assets are secured by the obligations.
- Liabilities to tax agencies require separate analysis as to the type of tax, assessment dates and any available the statue of limitations.
- Beware of payments made to your creditors in the 90 days prior to filing for bankruptcy and shipments received within 20 days of filing. These will have implications to the creditors and may provide them with priority claims and superior rights.
- Avoid payments to related individuals and entities. These all will likely fall under the fraudulent conveyance rules and will be recoverable by the Trustee.
- Identify personal guarantees, many business owners have signed personal guarantees with suppliers, this can easily cause a personal filing after a business filing, know where the liabilities start and stop.