A lot of businesses, especially small businesses, are experiencing a hard time staying afloat in the turbulent marketplace. The financial adversities brought by the Covid-19 pandemic have further forced businesses to shut down. Corporate small business owners find filing Chapter 7 an excellent option to wrap up the business. By filing for Chapter 7 Bankruptcy, the bankruptcy trustee becomes responsible for selling the business’s assets and distributing the proceeds to the creditors as per the law. Chapter 7 bankruptcy is a transparent process that ensures all creditors are treated fairly. However, filing for Chapter 7 bankruptcy can make a business owner vulnerable to litigations. Thus, one must hire a tax attorney near me for bankruptcy-related filings.
No doubt bankruptcy is one of the best ways to repay debts and wind up a company. However, bankruptcy may not be a good option for some businesses. There are several legal aspects to bankruptcy that a business owner should consider before going for it.
In this blog, we have listed down some reasons why bankruptcy isn’t a good idea for small businesses.
- Filing for Bankruptcy can attract Potential Lawsuits: Once you have filed for bankruptcy, creditors are more likely to come knocking on your door and complain. A common complaint is that a shareholder treated the corporation as its own and used the business money for personal payments. This is referred to as alter ego lawsuit. In such a lawsuit, the plaintiff tries to pierce through the corporate shield that safeguards a shareholder from corporate liabilities. Once you have filed insolvency, the creditors will more likely look for ways to get their debt paid.
- One can’t back off after filing for bankruptcy: In Chapter 7 bankruptcy, there is no backdoor. The bankruptcy proceeding can only dismiss through court orders. And counting on the court to dismiss your bankruptcy proceeding can be a bad idea. One should only file for Chapter 7 unless one is ready to deal with whatever comes in their way. Even if you find out that you will have to let go of your personal belongings, you will have to stick to the process. Thus, it’s a wise idea to consult an IRS Lawyer Virginia Beach before taking any steps.
- Taxes: Filing for chapter 7 bankruptcy can make your business taxes complicated. Before deciding to go bankrupt, a business owner should consider taxes and debts in advance.
- Lawsuits: Soon after filing for bankruptcy, the court gives an automatic stay order on the personal and business property. Meaning, the creditor can’t foreclose or repossess the property of the business owner. However, automatic stay order is only applicable when you are sued for money. The automatic stay does not affect civil or criminal proceedings. The government can sue your business despite your bankruptcy status.
- Improper purposes: The court is always watchful of people who file for bankruptcy for improper purposes. People looking to stall a foreclosure or repossession on the property often choose to go bankrupt. The penalties for going bankrupt for improper conduct are high. Thus, one should have pure intentions to go bankrupt.