Three Pivotal Questions About Commercial Bankruptcy on Long Island
1. How much of the business debt is secured?
When your Long Island business isn’t going well, it’s hard to know whether to keep struggling or take the steps to file for bankruptcy. Let’s look at some critical facts that may limit the net benefits a business can realize in bankruptcy.
A secured debt is an obligation that your business owes and backed by collateral that a creditor can recover if you default. There are two types of secured debt – voluntary and involuntary. Debt that you purposely acquire such as business loans is considered voluntary, where as things like real property tax are considered involuntary.
When filing for bankruptcy, changes are they you have acquired a few liens, by not being able to pay back your debt. So, if a lender or vendor to the business has a blanket lien on the assets of the business, bankruptcy may limit the changes that can be made to the business debt or operation. In other words, creditors will need to be paid back.
Fortunately, liens that are larger than the value of the collateral (property that credit is owed) may be crammed down, which means. bankruptcy courts are able to modify loan terms. This can reduce interest rates and extend the payments over a longer period to create lower monthly payments and the secured creditor is only paid the value of the collateral.
There are many hidden traps in proceeds from collateral. Misuse of the proceeds of a secured creditor’s collateral can create a non-dischargeable debt for the individuals involved. The accounting for secured proceeds is critical. Hiring a bankruptcy attorney who has experience in commercial bankruptcy will make sure that all of your liens are handled properly.
2. Does the business owe back payroll taxes?
The short answer is – Yes. When an employer deducts taxes and social security contributions from employee wages, the employer becomes a fiduciary for that money which belongs to the employee.
Which means it is there responsibility that their employees money gets paid to Uncle Sam. If diddling with the payroll taxes is what keeps the business afloat, you’ve got trouble. In the event that your business is filing for bankruptcy, the corporate officers will be held personally liable for paying the taxes.
The same can be said for sales taxes and trust fund taxes in some jurisdictions.
3. Has the business paid debts owed to insiders in past year?
Forming a corporation or an LLC is a common way to shield your personal assets from business debts. Under certain situations an individual may still be held liable for corporate or LLC. An individual does have the opportunity to offer to pay off business debts by offering their personal assets as collateral. On the other hand, a creditor can go after the personal assets of a business owners by proving that the corporation or the LLC is a sham or an alter ego of its owner.
Please make sure you trust whoever becomes the bankruptcy trustee as sometimes they seek legal action and sue the owners of the business to get access to their personal accounts to pay off business debts.
If other owners of the business or business decision makers have a claim against the business entity, the bankruptcy