The first step in any pre bankruptcy planning phase is to have someone to a realistic assessment of why the business is not doing well. This is extremely important because the owners of the business have trouble seeing their business objectively and without emotions. Being able to see a business objectively will give you the ability to make the tough decisions that are hard to make.
It is important to pinpoint where the problems in the business are coming from in order to carry out the correct bankruptcy proceeding. If the problems stem from bad contracts, temporary cash flow problems, or other nonsystematic problems, reorganization will give the business time to get its affairs back in order.
What is also important in reorganization is the automatic stay prevents any creditors from suing the business or enforcing a judgment, which would make the businesses problems even worse.
Once a Chapter 11 or Chapter 13 bankruptcy has been started, it can be hard to get creditors to extend credit. It is very important for the business to start to accumulate a cash reserve prior to filing for bankruptcy in order to have some cash to continue their operations.
Organizing Debt Payments
It is also important for the business to organize their debts in order to determine which should continue to be paid and which should not. The business wants to schedule all debts owed, all third parties affected, and the secured or unsecured nature of the debt.
This will also give the business an idea of the debts that will be discharged. If a debt is to be discharged in bankruptcy, payment on the debt should generally cease (assuming Chapter 7). Reorganization will require some type of payment which will be addressed during the bankruptcy proceeding.
It vital for a business to seek the best legal advice they can afford in order to ensure a proper bankruptcy filing and the well being of their business and financial assets.