There are always risks to business ownership such as global economic factors that are impossible to control. That has resulted in business bankruptcies trending upward, with a 13 percent increase in filings over last year.
The decision to seek bankruptcy protection is not taken lightly. Bankruptcy has long-term implications for your finances and your reputation, so planning and executing the process accurately is critical.
Partnering with an experienced business bankruptcy attorney can make the difference between a smooth resolution and one marred by serious legal complications.
How to Prepare for Your Business Bankruptcy
Choosing among the different chapters of bankruptcy available to businesses may seem easy, but knowing the nuances of each is key. Consider the following:
- Business owners and sole proprietors must choose between Wisconsin’s allowed exemptions and the federal exemptions when filing. A bankruptcy attorney can analyze your business’s accounts to help you decide which exemptions are the better fit. Exemptions are the assets protected from liquidation
- Sole proprietorships and LLCs are handled differently in bankruptcy court. Sole proprietors’ debt is mingled, personal and business-related, while an LLC’s debts are business related only.
- Subchapter V of Chapter 11 bankruptcy is available to small businesses, allowing a faster, less expensive process as long as 50 percent of the debt is business related and the total debt does not exceed $7.5 million. The expedited process is designed to help them reorganize and resume normal business quickly.
- Each of Wisconsin’s bankruptcy districts (eastern and western) have their own ways of handling cases, such as local rules and model plans. Also, judges in these districts may use different valuation formulas that impact plan confirmation and debt treatment.
- Knowing which debts are dischargeable is critical to a bankruptcy filing. Some state taxes (such as sales tax and payroll taxes owed) may not be discharged by bankruptcy.
- State economic development loan debt may give the state special status as a creditor in the form of enhanced collection rights.
Common Mistakes in Filing Business Bankruptcy in Wisconsin
Courts expect a high degree of accuracy and completeness in bankruptcy filings. Mistakes can delay your case, increase costs, or lead to dismissal.
Common mistakes or pitfalls in bankruptcy filings can have serious consequences. The court relies on the petitioner to provide background information and accurate figures (and the petitioner swears an oath to its accuracy, so fibbing threatens perjury). Common errors may include:
- Undervaluing the company’s assets or missing a category of assets when filing can skew the financial documentation provided to the court. Whether intentional or a mistake, the court may consider this fraud.
- Not providing an accurate accounting of debt is serious. When applying to reorganize under Chapter 11 bankruptcy, the court relies on the petitioner and their attorney for correct figures. Missing debts or overstating the debt burden are significant errors.
- Missing deadlines or hearings set by the court can result in dismissal of the bankruptcy petition. In addition, the court may bar you from a duplicate filing for a period of months. The court’s automatic stay that prohibits creditors from seeking repayment is also lifted when there isn’t an active case, so you may be subject to collections actions like lawsuits and repossession.
- Filing for the wrong chapter or misunderstanding the rules of each chapter are mistakes that add up. If you’re up against collections deadlines this is particularly painful. Understand that businesses use Chapter 7 (liquidation), Chapter 11 (reorganization), Subchapter V (Chapter 11 for small businesses), or Chapter 13 (repayment).
Rely on Experienced Counsel for a Smooth Process
Filing for bankruptcy is never a pleasant experience, but avoiding errors and missteps in the process will make it less painful. You can rely on the experience and professionalism of the business bankruptcy attorneys at Kerkman and Dunn to guide you through each step and help you regain financial control. Contact us for a consultation.
