Business owners could face financial difficulties that require them to file bankruptcy. Unfortunately, while it is a great way to settle debts, it could generate significant asset losses for the business. One wrong move could shut down the company completely, and the owner could lose everything they’ve worked for their entire life. Reviewing 6 ways to protect the business in case of bankruptcy helps them decide what is appropriate for their company.
1. Choose the Correct Chapter of Bankruptcy
A prevailing problem for businesses when filing for bankruptcy is they choose the incorrect chapter. Liquidation is an appealing option for companies because it can help them get rid of debts and get a fresh start. What business owners don’t realize is that chapter 7 requires them to shut down their company completely, and after the bankruptcy, they cannot operate a business under the same name. They lose all the credibility they have established under the current name. The bankruptcy court decides what assets they sell, and the business owner has zero control over their assets. This could lead to significant losses for the business owner. Business owners can learn more about their option by discovering Corpus Christi Business Law today.
2. Do Not Transfer Assets Immediately Before Filing for Bankruptcy
The bankruptcy court reviews all asset transfers to determine if the business owner is guilty of fraud. Transferring assets right before a bankruptcy claim indicates fraudulent actions and shows the court that the business is attempting to hide assets from the court. If the business is facing difficulties, they could transfer assets into a trust when they start the company, or at least one year prior to filing for bankruptcy.
3. Sell Assets You Don’t Use for the Business Anymore
The business owner can sell any assets that aren’t used by the company anymore. Outdated equipment that is in storage could present them with money to settle debts. It could also prevent them from losing the assets during bankruptcy. If the company doesn’t use the items, the owner could capitalize on their sale and pay off debts. This could help the business owner avoid bankruptcy.
4. Pay Off Any Loans for Business Assets
Business owners with current loans financing business assets should pay off these loans if they are considering bankruptcy. If they don’t owe a creditor, they don’t have to include the debt in the bankruptcy claim, and they won’t lose the asset. The company or the business owner will own the assets outright. Any items owned by the business owner personally aren’t considered business assets.
5. Cut All Unnecessary Spending
Businesses could reign in their spending to avoid bankruptcy. This could protect their assets completely and prevent the business owner from filing a claim. Reviewing their finances shows where the company is spending too much money. If they cut down on spending, the business could pay off more debts.
6. Review Exemptions According to Your Business Type
When filing for bankruptcy, the business must assess all exemptions according to their business type. Bankruptcy exemptions are different for LLC, sole proprietors, and corporations. It’s vital to understand the differences before they start a claim.
Bankruptcy could devastate a business owner and shut down their business entirely. Understanding bankruptcy laws and asset exemptions helps the business owner learn about their rights. Asset protection is vital for all business owners, and they must avoid outcomes that lead to asset loss. Reviewing how bankruptcy affects their assets helps the business avoid costly mistakes.