Matching the filing to the goal
Filing business bankruptcy starts with deciding what the case should accomplish. If the business will close, Chapter 7 usually hands the assets to a trustee for liquidation, although the company itself does not receive a discharge. If the business can survive with less debt or through a sale, Chapter 11 or its Subchapter V track lets it keep operating while it restructures. A corporation or LLC must be represented by a lawyer in bankruptcy court and needs proper authorization from its board or members before filing. Owners should also plan for their own exposure, since personal guarantees and certain tax obligations are not resolved by the company's case.
Records the case will require
The petition is accompanied by schedules of assets and debts and a statement of financial affairs, signed under penalty of perjury. Those documents ask about recent payments to creditors, transfers of property, payments to insiders, lawsuits, and closed accounts, so the information has to be gathered carefully rather than estimated. Assemble bank statements, tax returns, financial statements, loan documents, leases, a list of creditors with addresses and amounts owed, and records of vehicles, equipment, or real estate. Keep all business records intact, even if the company is closing, and do not discard files. Inaccurate schedules can create problems for the people who signed them, including in some cases referrals for investigation.
Conduct in the period before filing
Payments to insiders, transfers of assets for less than fair value, and paying some creditors in full while others get nothing can all be examined and sometimes reversed after the filing, and the period a trustee can look back over may be longer than owners expect. Selling equipment or moving inventory before filing should be discussed with counsel first. Collecting receivables, keeping insurance in force, and running payroll accurately are generally appropriate, while large or unusual payments call for advice. In our first review we go through recent transactions, the company's debts and assets, and the owners' personal exposure, and then plan the filing date and chapter. Getting advice before taking these steps tends to leave more options open.
