If your business has been struggling and you simply can’t pay your debts, it’s time to take stock and consider your options. But what’s the first thing you should do? Consult with a business attorney. If you continue on the path you are on without making any changes, things are likely to become untenable, and your business may never recover.
A business attorney will conduct an initial evaluation of your business to determine the structure of your debt. Depending on your current financial situation, there are several possible resolutions your business attorney may suggest. These include the following:
If you are committed to your business and intend to stick with it for the long term, your business attorney may recommend that you look at consolidating your debt. Your accountant can help you figure out which debts are the most important. However, you will also need a lot of input from your business attorney, because you can put yourself at risk of a lawsuit from the creditors you choose not to pay.
You should also ask your attorney how you can minimize any potential fallout from your decision. You can then craft a formal proposal to your creditors with the help of your business attorney.
If you don’t foresee your business being able to come out of the red anytime in the future, your business attorney may advise you to close down. Closing down will allow you to liquidate your assets and pay some money to your creditors. The proceeds from the sale of your assets may not be enough to pay all your debts, but it can help you pay off the most important ones.
Bankruptcy is another option your business attorney may recommend, but you want to carefully consider the repercussions that will ensue before taking this decisive step. No doubt your business attorney will outline the requirements for filing, as well as your obligations to creditors and the IRS, if you decide to go this route.
While filing for bankruptcy may seem like an easy way out because it offers the opportunity for a fresh start, it has several consequences that you should be aware of. Your attorney will also review these with you.
Striking a deal that will allow you to pay your creditors a portion of what you owe is usually considered a better option than filing for bankruptcy, but your business attorney will advise you accordingly.
Your business attorney will also assess your case to determine whether you should file for business bankruptcy or personal bankruptcy.
If you’re unable to pay off your business debts, doing nothing is not an option, because your creditors will come after your business assets to collect on the debts. Contact a business attorney (or us!) for legal advice. An attorney can advise you of the legal implications of maintaining the status quo and help you choose the most viable solution.