Financial distress may result in panic causing you to engage in various strategies to save your business. If you think that you may ultimately end up filing business bankruptcy, there are a few activities you ought to refrain from. Our experts at ZocLaw.com discuss what not to do before filing business bankruptcy. The following activities may result in an adverse outcome of your case:
- Do not give assets way – You may consider giving your assets to friends or family or selling them at a lower price to relatives so that the asset or property no longer belongs to you or your business. This is unadvisable. Trustees and creditor’s attorney are very experienced with these tactics. They may take the assets and property back and even charge you with fraud which may prevent you from receiving discharge of your debts.
- Dishonesty on your loan application – Your business is battling to stay afloat and you need to get funds via a loan. You may be tempted to overstate or overvalue your assets and withhold information about debts that you have. This may lead to fraud charges. Consequently, the bankruptcy court will refuse to discharge debts that you obtained fraudulently.
- Do not make preferential payments – The trustee will look at all payments that you have made to creditors for the past year and may take those payments back to distribute among all your creditors. All payments above a certain threshold made to creditors within the last 90 days may be regarded as preference.
- Spending heavily and taking cash advances – The trustee will suspect that you are defrauding the court and creditors if you buy luxury goods or services within the last three months before bankruptcy. The creditor may argue that the debt is fraudulent if you spend on a new car, bought time share etc on credit, no matter when you took it. Cash advances more than $825 taken within 70 days before you file bankruptcy may be considered fraudulent. In these cases, the debt will not be discharged.
- Unsecured debt or car loan – Do not pay unsecured debts or make car payments before bankruptcy. Unsecured loans may be discharged during bankruptcy.
- Property from your Corporation or Limited Liability Company – The assets of an insolvent corporation or Limited Liability Company belongs to its creditors. You cannot take assets. If you do so, it may lead to criminal charges or may lead to dismissal of your bankruptcy case.
- Pay yourself – You cannot pay bonuses or back pay to yourself for one year before bankruptcy. These payments are considered preference and will be taken back. It may also be considered fraud and may lead to dismissal of the bankruptcy case.
- Insurance – There is a possibility that you may remain in business after bankruptcy. Try to keep your liability insurance active before bankruptcy. It may be difficult getting liability cover after bankruptcy . However, if you have made payments the insurance company cannot cancel insurance during bankruptcy.
Our business debt relief experts have assisted many small business owners prepare for the bankruptcy cases. If you are unsure about what not to do before filing business bankruptcy, schedule your free initial consultation today with one of our experts. In many instances, we have found that bankruptcy is not the best debt relief route for our clients. In that case, we have assisted them with: