If your business is in the midst of seemingly insurmountable debt, your only option may be to file for bankruptcy. However, it is imperative that you consider all of the available paths and channels before you take this very final step. Ultimately, filing for bankruptcy should always be a last resort; it cannot be reversed and its implications are serious, so do not let panic and anxiety alone drive you to the process.
Bankruptcy filings don’t come cheap and they can wreak havoc on your credit score. If you have been considering it as a possible route, seek some professional advice first. With the support of an insolvency advice service like Bryant and Bryant, you’ll at least get the chance to try any other available options before officially folding.
This guide to some of the most important things to think about before filing for bankruptcy will help you make the right decision.
1. Not All Debts Are Dissolvable
One of the most common (and damaging) beliefs about bankruptcy is that it causes all debts to vanish. Unfortunately, this isn’t the case.
There are some types of debt that still stand even after filing. For instance, things like alimony payments and child support have never been included as part of bankruptcy deals. They will not disappear if you file and close the business. The same applies for unpaid taxes, which still must be settled even if other debts are wiped.
So, remember this when considering the action; the last thing that you want is to file and still be left with the same problems as before.
2. Filing for Bankruptcy is Expensive
Don’t be fooled into believing that filing is free either. It can be very pricey and many individuals have to resort to a payment plan to settle the associated expenses. The court will charge a standard filing fee and you’ll be liable for attorney payments if you do need to hire outside help.
The law doesn’t prevent people from filing without the advice of an attorney, but it is quite rare and almost entirely discouraged. The consequences of mistakes can be huge.
3. There is More Than One Way to Do It
Not a lot of people realise that there is never just a single way to become ‘bankrupt.’ In Australia, there are three categories of bankruptcy, with only Part IV taking the form of full and absolute closure. Part IX and Part X filings involve arrangements between creditors and debtors.
Before making the decision to pursue bankruptcy, ask your financial or insolvency advisors which is the best for you. They will be able to tell you whether or not a full filing is the only option or whether some assets can be saved.
4. It is a Long Term Decision
It is a mistake to assume that filing for bankruptcy represents an end to all financial troubles. If it did, there’d be little incentive for businesses to try and keep their finances in the black. Unfortunately, there is no clean slate; not entirely anyway. If you file, it will stay on your record and may make future transactions much harder. Certainly, obtaining a loan or a credit card will be tough for the first few years.
In any situation that requires a credit check, there is the potential for rejection based on your past situation.
Why You Should Always Think Before You File
Every year, thousands of businesses rush headlong into filing motions, because they see the process as cure all. They presume that, in a few years, they’ll be free to start over and have another try at running a business. While this certainly isn’t impossible, it is not wise to believe that a bankruptcy filing has no consequences. It is a serious move and should only ever be taken with a full and frank understanding of the implications.