Will I Be Able To Operate Business As Usual During A Small Business Bankruptcy?
In most cases, a business may continue to operate as usual during a bankruptcy.
Does Someone Need To Alert Their Employees When Filing A Small Business Bankruptcy?
If a business owes its employees money, they will most likely find out about a bankruptcy since they are considered priority unsecured creditors. There are three classes of creditors: secured creditors, which are creditors that have a loan secured by some collateral; priority unsecured creditors, which include your employees and attorney if you owe them money; and unsecured creditors, which is everybody else. In all likelihood, they are going to find out about the bankruptcy.
A while back, I assisted a client with case involving Best Buy. If you purchase a large appliance from Best Buy, like a dishwasher, they cannot install it for you. In 2018, Best Buy was grossing about $4.5 million, and in 2019 or 2020, they were underwater. We had a number of 1099 contractors that were owed money to the tune of about $180,000. We identified them as priority unsecured creditors, and to the extent of any funds available, they will be reimbursed at least a percentage of what they are owed. However, this will occur if there are things that can be sold. In this case, there were a number of old beat-up trucks that were auctioned off. It’s still going on. The trustee is administering, but I’m not sure if any of them got paid. And so, in most cases, employees who are owed money will certainly find out.
How Long Will The Process Take To File And Complete A Small Business Bankruptcy?
Due to COVID, it is taking around 190 days, from start to finish, to file and complete a small business bankruptcy, unless there is something unusual about a case. In bankruptcy, it is not uncommon for the trustee to decides that he or she wants to liquidate some equipment. In one recent case, the equipment that a building company owes money on has disappeared. The building company claims that it was taken by another company they owe money to. The trustee is still sorting this situation. In that case, the bank wasn’t satisfied with their explanation as to what happened to the collateral. As a result, the bank filed an adversary case seeking to set aside the discharge of their loan, which was a little over $100,000. This case has been rocking along for a good six months. However, that’s an unusual situation.
How Would Filing A Business Bankruptcy Affect My Personal Credit Score?
Filing a business bankruptcy can affect your personal credit score. Credit scores normally take a hit. However, in almost every case, within a few months after the bankruptcy is discharged, people start to get notices from credit cards, mortgages, and car loans. I was recently sent some literature from a company that will finance a car for you while you are in bankruptcy, which is really kind of unusual. I think their theory is that anything you incur after filing, you’re still on the hook for.
Will I Ever Be Able To Start A New Business After Filing For Business Bankruptcy?
In most cases, starting a new business after filing for bankruptcy is not a problem. Once you are discharged, you are good for eight years. I’ve done bankruptcy for people that have filed three or four times. They usually just change the name and operate under that different name.
Will I Ever Be Able To Get Financing To Support My Business Again If I File A Business Bankruptcy?
If you file for a business bankruptcy, you will still be able to get financing in the future to support your business. As mentioned, once you get discharged, you can’t file for bankruptcy again for eight years. At that point, you are a very good credit risk. Depending on the underwriting requirements of the lender, in terms of income, it’d be a matter of satisfying their underlying requirements. The requirements vary from bank to bank. Some banks are a lot more willing to lend money to somebody in that position, even if it’s secured by collateral. If the collateral is of sufficient value, the bank will be satisfied to have it on their loan.
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