Things To Avoid Before And After Filing Bankruptcy:
Ever been stuck wondering what the difference between Bankruptcy dismissal vs discharge is? Or, do you struggle to clearly define the difference between insolvency vs bankruptcy?
Most people have ended up paying bankruptcy attorneys a truckload of money, however unnecessarily. This is because they had no idea how to deal with this dire situation, and ended up doing all the wrong things.
For readers all over the US who would like to know exactly how to navigate these murky waters, this is just the piece for you. Are you worried about the things to avoid before or after filing for bankruptcy? Do read on now.
What Is Bankruptcy?
Let’s start by giving you a simple definition of what it means to be bankrupt before we continue.
According to Wikipedia, Bankruptcy is a legal process that occurs when entities or individuals seek relief from all or part of their debts when they cannot repay their creditors. More often than not, the bankruptcy process is initiated by the debtor before it is imposed by a court order.
Now, before anyone starts thinking that this may be a “get-out-of-debt-quick” trick, there are several factors to consider here.
One of them is that there is a major difference between being bankrupt and being financially insolvent. Financial insolvency simply refers to a situation where a debtor is unable to make debt payments as and when due.
Hence, bankruptcy is not another word for insolvency, as an insolvent person may have more than one legal status. This means that an insolvent person is not necessarily bankrupt and should not claim to be either.
Don’t Rush To Bankruptcy
Even when boxed into a pretty tight financial corner, and it seems like all is lost, bankruptcy should always be a last resort. Don’t ever be in a rush to declare yourself (or business, as the case may be) bankrupt.
Truth be told, it sounds like a great thing – being able to get a court order absolving you of all your debts, doesn’t it? Well, bankruptcy is not a quick fix to your debt problems, and declaring it is not without attending consequences either.
However, if you absolutely must declare yourself bankrupt, here are a few things to avoid before doing so.
Raiding Your Super Fund
What is your Super Fund? Moneysmart.gov.au says that this is a way to prepare for life after retirement by putting money away. This is not just any type of savings though.
There are different types of accounts but, once it is set up, a percentage of your earnings are paid into your super account by your employer regularly. This money is put into different investment machinery on your behalf by your super fund until you retire.
Now, whatever happens, you should never go raiding your super fund before filing for bankruptcy. This is because all funds and assets registered to your name are usually taken by the court to pay off your creditors. It is whatever debts are left that you get the waiver on.
Avoid Favoring Creditors Before A Bankruptcy Filing
If you want to snap on bankruptcy as a means of escaping pressing debts, you should desist from doing certain things immediately. One of these is to try to favor a certain creditor over the others by making lump payments to him/her shortly before filing for bankruptcy.
One of the duties of a bankruptcy trustee is to ensure that such payments are not made to any of your creditors to maintain fairness to all. The bankruptcy priority payment rules hold that no creditor should get a windfall while others get less than they should have received.
You may probably think to curry favor with a certain creditor in the hope to receive new loans from them soon. However, if your payment to them violates the “avoidable preferences” clause, the trustee is mandated by law to retrieve such payments from the favored creditor.
Transferring Or Gifting Assets To Family Or Friends
We will not sugar-coat this part at all: Transferring or gifting your assets to family and friends a short while before filing for bankruptcy is a federal crime in the United States of America. This white-collar crime is punishable by a fine of over $500,000 and a jail time of up to 5 years as well.
Under bankruptcy statutes, the following are considered acts of bankruptcy fraud:
- Any false declarations
- Bogus claims
- Deliberate destruction or hiding of documents to hide assets
- Arranging to have your assets redistributed
- Any other kind of falsification during your bankruptcy application
Knowingly or unknowingly carrying out any of these acts will surely be held against you as an act of perjury.
Sometimes these things may have been done without the intent to defraud your creditors and the bankruptcy commission. You may have become caught up in an involuntary bankruptcy situation just a few months after having given out some assets to family or friends.
This is why consulting with a business bankruptcy lawyer is not optional at all, especially in situations where next chapter bankruptcy is unavoidable. Reach out to one here now!
Bankruptcy In Online Business
Yes, an online business can end up in bankruptcy as a lot of these businesses are either started or completely owned and operated by sole proprietors. Some of such businesses include, but are not limited to, the following:
- E-Commerce Retail
- Web Developing
- Web Designing
- Affiliate Marketing
- SEO Consultancy
- Virtual Assistance
Also, a lot of these businesses are almost always started with loaned funds, and, in the event of gross mismanagement, bankruptcy is quite inevitable. Most of these loans are obtained either from family members, relatives, wealthy friends, or from friends in good positions in financial institutions.
An inability to pay back or meet up with scheduled payments as and when due may lead to more financial losses for the business as the proprietor panics. While most quickly opt for it, this may not be the best case bankruptcy scenario though. Why? Well, that’s because some other options may better suit such business owners. Most of them in this region have found this to be true after having a chat about their situation with any labor lawyer in NYC.
Again, this is why having a business bankruptcy lawyer, or consulting with top bankruptcy attorneys before making such moves is expedient, especially for sole proprietors.
These types of attorneys would let you know if you even need to file for bankruptcy at all or to just declare financial insolvency. And, if there is a need to file, they would let you know how and which type you may need to apply for.
Main Reasons Of Bankruptcy In Online Business:
There are several reasons why an online business may end up in bankruptcy, and here are a few of those reasons below:
Failure To Retain Customers/Clients:
Due to the nature and how online businesses are managed and operated, one fact remains undisputable – None can survive or make meaningful profits without having returning customers.
Returning customers are those clients that have patronized your brand, found your products or services to be reliable, and have chosen to become part of your brand by bringing regular business your way. These are the type of clients and customers that truly help you generate good profits consistently as an online business owner.
A lot of online businesses fail to retain already gained customers because they always focus more on attracting new clients than retaining existing ones. This is a major fail, even in marketing, as a happy and satisfied customer will not only return but will surely bring others as well.
As a rule, online business owners should endeavor to ensure that any client or customer they have an opportunity to serve is given their optimum best always. In the online business world, one client may be the key to hundreds of other opportunities by their simple referral, good rating, or endorsement of your brand. Hence, every client/customer must be treated as a golden goose as they could potentially be the one to lay the golden eggs your business needs.
Continuous Investments In Technology Are Always Ignored:
A huge mistake that a lot of online business owners seem to continually make is their unwillingness to adapt to newer trends and technology.
A refusal to continually invest in the latest technological advancements prevalent in your market will leave you at a huge disadvantage – being left behind by the competition.
For an online business, keeping up and staying abreast with the market trends is non-negotiable; it is a must! You may feel like there are no consequences to your decision to ignore such trends today. One thing’s for sure though: it will surely come back to haunt you in as little as 2-3 years from now.
While your old technology may still be working, it will become increasingly difficult for you to conduct business and keep up with your competition. A huge disadvantage of this is that, as time progresses, you will lack the ability to use cutting-edge solutions like plug-ins, custom-built modules, and your security will also become a big problem.
Another thing as bad as not doing this at all is not doing it when you ought to as well. Some online business owners keep procrastinating and only talk about how they’re going to upgrade to keep up with industry standards “soon”. Unfortunately, that “soon” seldom comes and, sadly, the migration process to these new technologies becomes much harder the longer you keep delaying. Obtaining resources to develop old technologies or even update them is always very hard. This is because their components are not updated anymore as everyone has moved on from them already.
A good example to note and emulate is the Chicago-based Web Software Company, Basecamp’s business pattern and ideology. According to them, they ensure that they never exceed 4 years before re-writing their application. This is done so that they can ensure there are no backlogs of technological debts, and the freshness of their technology is preserved as well.
A trend that is rapidly growing and also generating great business results for owners is the switch from native apps to Progressive Web Apps (PWA). This can be a big boost for your digital business online as investing in it could give you an edge over the competition.
Only Settling For Decisions That Potentially Have The Highest ROI:
As much as it’s an infallible truth that every business is created to generate maximum profits, some moves have proven to be counter-productive for online business owners.
While a very key approach while setting up a business is the calculation of potential ROI. As important as this is though, it is also quite pertinent for an online business owner to make decisions and plans with a long-term approach.
Why so, you ask? Well, making such plans and decisions would not only help you with your marketing vision strategically but would also help your brand retain its attractiveness. Always opting for profitable means and ways to acquire new clients without a solid plan and budget to keep those clients will leave you shortchanged eventually. Your client base will decrease drastically over the years, and soon enough you’ll be staring at avoidable bankruptcy in the face.
Introducing New Concepts That Do Not Align With Your Brand Identity:
Every business desires growth and an online business is not exempted from this either.
Growing your simple online store into a diverse marketplace, however, may be a tricky and negative move if you do not do it correctly. As an online business owner seeking to expand, you must be very open and honest as you communicate your expansion plans to your existing client base.
Also, your new offerings and categories must align with your brand identity and, as much as possible, remain consistent with what you’re already known for. Anything other than this has the potential to make your clients feel ostracized, and this would inevitably make you lose them. Hence, an innocently good idea could potentially breed danger for your business if not properly executed.
How To Avoid Bankruptcy In Your Digital Business Online?
If you want to avoid finding yourself in a situation where your online business becomes bankrupt, you may want to pay attention to these few tips here.
Adopt A “Pay-As-You-Go” Pattern With Your Clients: There’s no harm in being cautious about your financials as an online business owner. Don’t be shy to ask your clients to kindly pay for most of your services before you commence work on their projects.
Know When To Let Go: You need to be swift about cutting your losses on any project and not wasting resources avoidably. Not every project will go your way. Learn to walk away immediately you notice any particular one isn’t working for you.
Do Not Be Slack With Your Marketing: This not only ensures that you’ll get new clients but is also key to retaining the existing ones as well.
Diversification Is Beautiful: Try as much as you can to ensure that you are vast in knowledge and have diverse skills as well. Do not depend on one source for anything you do online…ever!
Keep Solid Tabs On Your Finances: Always make sure you assess your finances and aren’t piling up any unnecessary debts.
Stay On Top Of Your Payment Plans: Make sure that you give top priority to paying off your debts as and at when due. No matter how little or insignificant they may seem, a backlog of debts portrays danger for any business always.
Keep Abreast With Trends And New Technology: This can never be overemphasized in any way, as failure to do this is tantamount to planning to end up in financial trouble in the long run.
No matter the nature of your business, nobody likes to have to declare bankruptcy as this could potentially do more harm than good at most times.
However, if you ever find yourself at a point where you need to, knowing the exact things to do and when to do them can be extremely valuable. We hope that we’ve been able to help you with most of all you need to know with this article.
This doesn’t and can’t ever substitute for having a great bankruptcy attorney in your corner though, and you can always get one without breaking the bank. Speak to a qualified professional here now.
About the Author
Yuriy Moshes is the CEO of Moshes Law and an attorney with broad expertise. He has two bachelor’s degrees. Being an experienced expert, he is considered one of the most in-demand specialists in the real estate law field. Apart from that, he provides free consultation for everyone who faces foreclosure problems.