From time to time, New York bankruptcy law firms are contacted by clients who realize that they have overlooked a debt during the bankruptcy proceeding. The effect of this oversight depends on the reason for the omission and the state of the filing.
Deliberate Omission of Debt
Never deliberately neglect to inform your bankruptcy law firm of one of your company’s debts. Doing so is one of the most serious bankruptcy infractions possible and can lead to penalties far in excess of what you think you might be saving.
Companies omit debt for a number of reasons. They might think a loan from friends or family isn’t covered under bankruptcy filing or would prefer to handle that debt separately. The loan might be a personal embarrassment. The debtor might mistakenly think hiding debt will protect the business’s future credit rating.
It is effectively impossible to hide creditors from bankruptcy proceedings in this manner. Your actions will be uncovered and the penalties will be severe. Even if you think a debt might not be relevant — which is common for small companies that may mix the owner’s personal and business expenses — tell your bankruptcy law firm about it anyhow and let a professional make the determination.
Accidental Omission of Debt
New York bankruptcy law firms report that most clients simply forget about some of their creditors. It could be an old debt or something small enough to fall through the cracks. An employee might have incurred the obligation but never notified upper management. Bankruptcy is a confusing time and mistakes happen.
If the bankruptcy filing is still in process, the forgotten debt can be added. The bankruptcy law firm amends the bankruptcy to include the additional debt and the process continues as normal. If the bankruptcy has been discharged, the situation becomes more complicated. The creditor has not been given the opportunity to be included in your organization’s debt restructuring. There is no easy solution to the situation but a bankruptcy law firm may be able to arrange a mutually agreeable settlement.
Get It Right the First Time
Even if the omission was an honest mistake, if the slighted debtor takes the case to court the ruling could still penalize your company harshly. This is why bankruptcy law firms stress how important it is to list all debt from the very beginning.
Go over your books carefully to find all creditors. The large creditors are easy to locate, which is why you need to pay special attention to any small debts you may have. In many cases, it’s the small debts that lead to very large penalties. Involve any employees in the search who had the authority to approve expenses so you can be sure to track all sources of spending.
Bankruptcy is a complicated process that no business should attempt without expert help. Hire a New York bankruptcy law firm to ensure your reorganization proceeds as it should.