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5 of Our Favorite Tips for Dealing With Business Bankruptcy

The Huffington Post The Huffington Post 9/10/2015 Nancy Laws
WOMEN AND RECESSION © Getty Images WOMEN AND RECESSION

As a business owner, the time and money spent in growing and managing my business has been worth so much. The idea of watching all of that crumble away into nothing is enough is terrifying but I have also learned that failures are simply an opportunity to learn from my previous mistakes and to take a Leap of Faith where others may quit.
Anyone who currently owns or has owned a business in the past understands that worrying comes with the job, especially when you experience dry patches. My mom calls it her slow period, they come and go in the hair braiding community, especially during the holiday season.
If you are not great at managing your money, a slow period can be detrimental to your business, and for some can result in getting so behind that catching up is almost impossible. For some, the only solution is business bankruptcy.
If you are considering business bankruptcy, these five tips may be just what the doctor ordered.
1. Realize that sometimes bankruptcy is your best option:Forbes
In certain cases, business owners might find that filing for bankruptcy is simply the best choice for their own mental health.
"I can't help but wonder if it would have been easier to file bankruptcy and move on," says Michael Hobbs. "Those I've spoken to said filing for bankruptcy was gut-wrenching, but it was also therapeutic, because the pain came to an end when the filling was complete. Fighting for survival is a vicious and cruel experience that has no obvious end in sight."
This isn't a choice that someone else can make for you, but having good advice can help. A financial professional can help you decide if your company has a reasonable chance of recovery or if bankruptcy is really the best way to go. If you do decide to file for bankruptcy, try not to think of it as "giving up." Think of it as starting fresh. Before you can succeed, you must first accept failure without fear.
2. What are the Types of Bankruptcy for Individuals?Money Girl
The most common types of bankruptcy for individuals are called chapter 7 and chapter 13:
A chapter 7 bankruptcy liquidates all your non-exempt assets to pay off creditors. It's generally the best option when you have a large amount of unsecured debt, like medical bills and credit cards, and little income.
A chapter 13 bankruptcy reorganizes or adjusts your debt using a repayment plan. It's the
best option if you have income, but want to avoid foreclosure of your home, or need time to catch up on outstanding debts.
3. Don't Make Preference Payments to Creditors:NOLO
If a friend, relative, or business associate has lent you money, you may be tempted to try to repay some or all of it before filing bankruptcy. Bad idea. When you file for bankruptcy, the bankruptcy trustee will scrutinize all payments you make during the year before the filing, to make sure that some creditors weren't given an unfair advantage (called "preference payments"). The trustee will want to "recapture" (take back) any preference payments you made to creditors within one year if those payments were made to a relative or close business associate (an "insider") -- and will divide them equally among all creditors. If your relatives or associates can't come up with the money that you paid them, the bankruptcy trustee can sue them to recover it.
You are legally allowed to pay one unsecured creditor ahead of the others if the creditor is not a close relative or associate -- for example, you can choose to pay the business line of credit that you signed a personal guarantee on before you pay your suppliers. The bankruptcy trustee will, however, look back 90 days at payments you made to these regular creditors. The trustee can make a company that was paid "disgorge" (return) payments of over $5,475 and spread the money among all of your creditors. (But if fewer than 51 percent of your debts are from your business operations, the trustee can force a company to disgorge only payments of more than $600.)
4. Bankruptcy is Not Expensive: MyBKHelp
Filing for Chapter 7 bankruptcy without the aid of a lawyer does not mean you do not have to pay for anything. Some charges will apply, including the following:

  • Case filing fee costs $245;
  • Miscellaneous and administrative fee costs $75;
  • Trustee surcharge costs $15.

Now, it might seem wrong to charge someone who is already filing for bankruptcy, but the court does by allowing payment to be given through installment. Typically, the installments should be paid 120 days after the petition, and no more than four installments done. Not being able to pay these fees can result to a dismissal of the case. The court clerk will provide you with a receipt of the payment together with the necessary information for the meeting of the creditors.
On the other hand, hiring a bankruptcy lawyer to help you with the process usually translates to higher expenses, averaging between $1,200 and $1,500.
5. 4 Bankruptcy Myths: Money Girl
Having a bankruptcy on your credit report can hurt more than just your ability to qualify for a future loan or credit card.
It's important to separate fact from fiction when it comes to owing debt and filing bankruptcy. Here are five common myths that are decidedly false:
Myth #1: You Can Declare Bankruptcy by Saying It in Public
In an episode of The Office, when Michael Scott's finances are tight, he screams, "I declare bankruptcy!" His accountant Oscar says, "Hey, I just want you to know that you can't just say the word bankruptcy and expect anything to happen." Michael replies, "I didn't say it, I declared it."
Myth #2: You Can Only File Bankruptcy Once
You can definitely file bankruptcy more than once in your life.
Myth #3: A Bankruptcy Hurts Your Spouse
If you're married, filing bankruptcy doesn't affect your spouse's credit. However, if you're struggling to pay debt that's in both of your names, then you should file bankruptcy together. Otherwise, creditors will simply demand payment for the entire amount from the non-filing spouse.
Myth #4: You Can Go to Jail for Owing Money
No matter what anyone says -- especially an aggressive debt collector -- it's not against the law to owe money. There is no such thing as debtor's prison in the United States.

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