Financial reorganization is not a simple matter and any bankruptcy attorney in New York has plenty of stories of businesses that have tried to do their own bankruptcy proceedings and ended up creating more problems for themselves. Here are some of the more common issues a bankruptcy attorney in New York will warn business owners about.
Bankruptcy Doesn’t Protect You Against Everything
It is a common belief that both incorporation and bankruptcy protect executives from personal responsibility for the business’s debts. This is true for most things but there are cases where an owner’s personal assets can be lost even in a corporate bankruptcy.
Businesses are expected to remain current on their payroll taxes and a bankruptcy attorney in New York can’t erase unpaid corporate tax bills. This is especially true for payroll taxes deducted from employee paychecks. Not only will reorganization not eliminate those debts, but the owner can be personally liable for the expenses. In a large company this amount can run into millions.
Another situation to avoid is the appearance of fraudulently obtained debt. Floundering businesses often seek additional credit, hoping to shore up their finances before bankruptcy becomes necessary. During this time owners must be scrupulous about reporting the company’s true financial situation. If any information is omitted or altered, even inadvertently, the government may claim the debt is fraudulent thus exempt from both bankruptcy and corporate protections.
Finally, some owners may develop personal attachments to corporate property such as a company vehicle. Transferring business assets to the personal possession of executives or their friends and family to avoid their loss in bankruptcy not only looks suspicious but will be discovered. It could lead to criminal or civil penalties.
Know What to Keep Current On
Even while engaged in bankruptcy proceedings, it is important to maintain certain payments. A bankruptcy attorney in New York can give a comprehensive list but several things top the list.
If a business lets liability or other insurance lapse during the proceeding, it will be very difficult to find anyone willing to cover the business after bankruptcy. As long as the business pays the premiums, the insurance company can’t cancel the policy. Stay current or even pay ahead to ensure coverage is continuous during reorganization.
Many rental and utility agreements contain stark warnings about cancellation in the event of reorganization, but any bankruptcy attorney in New York can tell you these clauses are nearly impossible to enforce. However if you miss payments, they are likely to be less lenient than they would be with more solvent companies.
Look over the company’s leased equipment. Maintain payments on equipment that needs to be retained after reorganization. Any items that won’t be needed under the new structure should be returned to the leasing company. While this will incur a deficiency debt of the amount between the current value of the item and the current balance of the lease, this debt will be eliminated by the bankruptcy.