All You Need To Know About The 90-Day Clawback Period

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When you file for bankruptcy, the court issues an automatic stay. This means that creditors are no longer allowed to contact you or try to collect debts. The automatic stay is in place for the duration of your bankruptcy case.

However, there is one exception to the automatic stay: the 90-day clawback period. It is the time frame during which a bankruptcy trustee attempts to recoup cash from creditors.

Read on to find out more about how the 90-day clawback period works.

What is the clawback period?

This 90-day period begins on the date that you file for bankruptcy. During this time, the trustee has the right to demand payment from creditors. If a creditor does not comply with the trustee’s request, the trustee can take legal action to recover the money.

Section 547 of the Bankruptcy Code allows a trustee to sue creditors who were paid by the debtor before filing for bankruptcy. The aim is to regain any unlawful benefit that the creditor acquired.

Why does the clawback period exist?

The power to reclaim money that the debtor has previously given away improperly is known as “clawback.”

The beneficiary is liable for any excess or unauthorized payments made during the bankruptcy proceedings. This clawback allows the trustee to recoup assets that should have been part of the debtor’s bankruptcy estate but were eliminated or hidden from the trustee by fraudulent transfers or preferential transfers.

It’s not a question of whether the debtor committed a crime or that the debt was fraudulent. It’s about seeking fairness for both secured and unsecured creditors in the end.

A trustee may usually ask for the return of money paid by the debtor to third parties within 90 days of the bankruptcy filing.

What are preferences?

 

Preferential transfers (also referred to as preferences) happen when one individual’s debt is paid off ahead of time so that it benefits one creditor above others. This includes both a secured creditor, a family member, a business partner, or anyone else.

For example, if a debtor repays $1,000 owed to his credit card debt 60 days before filing for bankruptcy, it will be considered a preference,  since the credit card debt got paid first.  If a debtor repays $1,000 owed to his father 200 days before filing for bankruptcy, then it will be considered an insider preference. The Trustee can clawback up to one year to recover any insider preferences.

A court-appointed trustee or the other creditors in the case have the power to request that all payments made by the debtor to third parties 90 days before the case’s commencement be returned or “clawed back.”

Are most payments preferences?

The preference recipient’s bankruptcy law provides some protections.

A contemporaneous exchange is not a preference. So, if you pay for the food you ate at a restaurant and the goods and payment for those goods change hands at the same time, there is no preference.

How much money is considered a preference?

Payments totaling more than $600 in the 90 days before filing are avoidable by law. However, it is not worth pursuing creditors for $600.

The sum is undoubtedly more than $600, but each trustee has her guideline for when a preference can be recovered to provide a dividend to creditors.

What is the preference period?

The bankruptcy trustee does not have an infinite amount of time to work in. The 12 months leading up to the date you file bankruptcy for payments made to friends and relatives, known as “insiders,” is your “preference period.”

For other unsecured creditors, such as past-due utility payments or an unsecured credit card, the period for preference payment is even shorter.

The debtor’s bankruptcy estate

If a debtor decides to transfer the title of an asset before filing bankruptcy, the item may be reclaimed from the estate under the clawback provision.

In some instances, the bankruptcy trustee assigned to manage the debtor’s financial affairs can get these pre-bankruptcy belongings back from people or businesses who received them.

In bankruptcy, the clawback provision allows trustees to look at financial transactions made by the debtor before filing bankruptcy to see whether he or she transferred or gave away any assets in violation of the “look-back period.”

The trustee can reclaim these assets, or their value, for the debtor’s bankruptcy estate from any other creditors who received them.

Not all preferences are the same everywhere

Keep in mind that preferential payments are a bankruptcy-specific law. This means that the rules may vary from state to state. For example, according to California state law, a debtor has the right to choose and select among his creditors. In Michigan, Chapter 7 trustees can claw back up to 6 years on fraudulent real estate transfers. 

It is advisable to seek the counsel of a bankruptcy attorney in your area to discuss your particular circumstances and the law as it applies in your jurisdiction. Establishing a safe attorney-client relationship can help you understand nuances in the bankruptcy code that are only known to a professional law firm.

How does the bankruptcy trustee recover preference payment?

The trustee has the authority to void or “clawback” certain payments made by the debtor in the 90 days before bankruptcy. This includes payments to friends, family, and businesses owned or controlled by the debtor within the last year. The trustee can also recover assets transferred by the debtor during this period.

When a transfer was made in return for anything that adds to or does not deplete the debtor’s assets, it will be avoided by a trustee.

The new value is something that can be given in exchange for a property. It can be cash or a release of a judicial lien. It doesn’t include the swap of an existing obligation for a new one.

Will a bankruptcy filing help my financial distress?

Bankruptcy may help you if you are struggling to pay your credit card company, car loans, or any antecedent debt. It can give you a fresh start by discharging some of your debt and reorganizing your remaining debt.

Although you can do a bankruptcy filing on your own, it can be extremely helpful to hire a bankruptcy lawyer or law firm to be by your side when going to bankruptcy court.

Attorneys evaluate your case, investigate your pre-bankruptcy payments, check your total debt owed, and help you see if you qualify for debt relief.

An attorney-client relationship keeps sensitive or confidential information safe and many debtors feel better than using any other self-help services when facing a complicated bankruptcy case.

 

Will the clawback period necessarily secure money for the debtor in bankruptcy?

If you’re considering filing for bankruptcy, it’s important to understand how the clawback provision works and how it may affect you.

In many circumstances, payments made within the 90-day preference period were not preferential, as recognized by most trustees.

Debtors may try to move property or cash to family members or “insiders,” intending to hide the assets “safe” until the bankruptcy case is over. The trustee may suspect a preferential payment and investigate the transfers.

If it is determined that this preferential transfer is a fraudulent conveyance, the trustee can void the transfer and get the property back for the benefit of the debtor’s creditors.

So beware of realizing any preferential or fraudulent transfers to save either your business or financial affairs when you pay creditors.

What can a creditor do not to lose money?

Typically, creditors must engage legal help to defend or settle preference claims, although various defenses may be used by creditors.

A lender who makes preferential payments has the right to file an unsecured proof of claim against the bankruptcy firm, but typically receives a minor portion of his or her money back.

 

In conclusion, the clawback can help the debtor in bankruptcy by getting assets back that were transferred during the 90 days before filing. The trustee may investigate and void any fraudulent conveyances. Creditors can use a variety of defenses to protect themselves from losing money, including the ordinary course of business defense or the new value defense.

 

Should I Tell Creditors I Am Filing Bankruptcy?

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The answer to this question is generally no. When you have a lot of debt (from credit cards, personal loans, medical bills, or a car loan), expect to receive more calls from creditors than you’d like. It isn’t very pleasant to feel like your phone has been taken over and you’d want the calls to stop.

Unfortunately, informing your creditors that you want to file for bankruptcy is unlikely to work. They can continue to reach out to you. One of the benefits of simply retaining a bankruptcy attorney is that your creditors will now be required to contact your attorney and by law must stop contacting you or face possible court sanctions.

You are not required to notify your creditors that you are planning to file bankruptcy; in fact, it may be in your best interest not to do so. However, there are a few exceptions to this rule, so it’s important to talk to an experienced bankruptcy attorney before making any decisions.

Here are some of the cons of giving creditors information about your financial situation and a possible bankruptcy process.

Potential adverse effects of notifying your creditors

No assurance threatening to file bankruptcy will deter creditors from calling you. The only surefire way to prevent this is actually to hire a bankruptcy attorney. Once you file the bankruptcy case with your attorney the “automatic stay” (i.e., the bankruptcy protection) comes into play, effectively freezing any attempts by your creditors to collect money owed.

Creditors are aware of the potential consequences of committing a violation and usually cease taking any further collection efforts. You should be careful to inform a creditor of your bankruptcy intentions because the creditor may intensify its efforts to get money out of you before it’s too late. Finally, no one knows what the creditor will do next, such as filing a lawsuit against you.

Yet beware of unfair debt collection!

The Fair Debt Collections Practices Act (FDCPA), a federal statute, prohibits debt collectors from using abusive methods to collect a debt.

Under the FDCPA once you simply retain an attorney to assist you with your debt obligations, then the creditor must only contact your attorney representative to discuss or resolve the debt. It also sets boundaries for creditors to prevent them from calling you in the middle of the night or from calling you an unreasonable amount of times.

Harassment from a debt collector is never OK. If you are scared, write to the firm and request that they cease calling you. If you ask them to stop contacting you, they are required by the FDCPA to comply.

How to stop phone calls and creditor harassment

A debt collector is limited by federal law from employing any deceptive, fraudulent, or misleading means to collect a debt. For example, misrepresentations about the debt are illegal under this legislation.

If you sue under this federal law and win, the debt collector will usually have to pay your attorney’s fees as well as damages. Of course, in this case, they can no longer contact you with any more collection calls.

Negotiate down the debt by working with the secured creditor or lender

If you owe money and manage your creditors yourself rather than employing a for-profit debt settlement firm, you may save a lot of money.

After you’ve decided to pay a debt, it’s time to figure out what you can afford. Take a good look at your finances.

Negotiating a settlement

Set a firm stance with certain creditors when you go to the bargaining table. Debt collectors and creditors are not allowed to threaten you with arrest or state that you will be arrested if you don’t pay your debt.

Be wary of the particular creditor that claims to be government contractors or subcontractors for government agencies like the IRS.

Some debtors consider that hiring a bankruptcy lawyer is a good idea for this negotiation. Since most bankruptcy attorneys know the ins and outs of the bankruptcy code and offer a free consultation, a debtor may visit them to decide if a bankruptcy attorney can be of assistance.

Advantages of settling a debt with a law firm

If you go to a free consultation with a lawyer, even before you talk about filing for bankruptcy, you can ask for assistance and discuss how to settle your debt. The main advantage of doing this is that you can get honest and accurate legal advice.

A bankruptcy attorney also might be able to get a lower settlement amount from the creditor than you could on your own because they are familiar with the law, have likely settled similar debts in the past, and creditors recognize that filing for bankruptcy is a legitimate possibility.

Working with a bankruptcy attorney provides you with protection from unlawful debt collection tactics, as well as confirmation that the calls and harassment will cease.

The attorney-client relationship has other great advantages like forming a solid strategy and providing an overview of all the options available to you.

How to hire a bankruptcy attorney for a bankruptcy filing to stop collection activities

You can find bankruptcy attorneys through online directories, word of mouth, or by contacting your state’s bar association. Once you have a list of potential candidates, set up consultations to get more information about their experience and fees.

Talk with the bankruptcy lawyer about the possibility and benefits of filing bankruptcy and what bankruptcy plans you have in mind. Yet keep open to the possibility that the attorney can suggest not going to bankruptcy court as the best solution.

Filing for bankruptcy to stop contact with a creditor

With a Chapter 7 bankruptcy filing, an automatic stay immediately goes into effect. The stay is a court order that stops all collections, including calls and letters, from the moment you file your case.

Yet bear in mind that according to bankruptcy laws, a creditor is not allowed to contact you directly or take any action to collect a debt once you get a case number. You will be assigned a case number when your bankruptcy petition is filed in bankruptcy court.

Proceedings will not always stop creditors

Some debtors mistakenly believe that simply informing the lender that a claim will be filed is enough to deter them from pursuing collection efforts.

Bankruptcy proceedings will not necessarily stop creditors from taking legal action against you. In some cases, your creditors may request that the court allow them to “lift the automatic stay.” If this happens, your creditors will be able to continue with any legal action that was already underway against you before you filed for bankruptcy.

Collection agencies will not care about bankruptcy protection until you get your case number and your creditor will probably continue to call you until they receive notice of your bankruptcy number.

The best method to notify your creditors you file bankruptcy

The Bankruptcy Court informs your creditors about your bankruptcy case once it is filed.  Bankruptcy cases are filed through an electronic filing system called ECF or pacer.  

This allows cases to be filed from anywhere at any time of day. The most common method for debt collectors to learn about bankruptcy filing is through a letter from the United States Bankruptcy Court Clerk.

The law requires that creditors on your bankruptcy schedules are notified of the filing. The B-9A is a type of letter in which all sorts of intricate information about the filing may be found.

What is a B-9A letter?

This letter includes:

  • Debtor’s name
  • Address
  • Social Security number
  • Client’s attorneys
  • Location and phone number of the office
  • Case number
  • Jurisdiction
  • Trustee
  • Date, time, and location of the Meeting of Creditors

A B-9A letter will be sent to all creditors listed on your bankruptcy schedules. The letter will provide information about the meeting of creditors, also known as the 341 Meeting.

All you have to do is wait for the notification from the court that your creditor has been receipt of the B-9A form.

In conclusion, remember that while an attorney can help you with your bankruptcy filing, the hiring of a law firm has no legal significance for creditors. The most important thing is that the court sends out notifications to all of your creditors about your bankruptcy case. Once they have received this notification, they are legally required to cease all collection efforts.

 

What To Do With Credit Cards Before Filing Bankruptcy Chapter 7

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One of the good things about filing for Chapter 7 bankruptcy is that it eliminates your debts, which might include credit card charges.

If you’re considering filing for bankruptcy, it’s important to understand what will happen to your credit cards.

It’s time to stop using your credit cards once you’ve decided to file bankruptcy. The debts in your bankruptcy won’t necessarily be erased if you run up your credit card bills just before filing (and don’t even consider any luxury goods).

If you know you won’t be able to pay when you make the purchase, and yet you never planned to fulfill the obligation, a creditor might file an adversary proceeding, which is a lawsuit against you. 

This lawsuit in the bankruptcy case will assume that you used your credit card right before bankruptcy without ever having the intention of repaying the credit card.

How are credit cards treated in a typical Chapter 7 bankruptcy?

A Chapter 7 bankruptcy filing is assigned to a bankruptcy trustee, who is tasked with administering your case and deciding what will happen with your total debt and any unprotected assets.

If there are unprotected assets, then once the trustee reduces those assets to cash otherwise known as a liquidation, then the trustee will use those liquidated funds to pay creditors a proportion of what they’re owed.

Only the bankruptcy trustee pays out money to the credit card company and other unsecured creditors (whether it be one creditor or many).

Which payments are made first?

Secured claims, (e.g. mortgage or car loan) get paid first on any asset that is liquidated that the creditor has a valid security interest in.

Priority claims, such as outstanding tax obligations and back domestic support obligations, are then paid.

Nonpriority, unsecured debts such as credit card balances and medical expenditures are paid last.

When to stop using credit cards before filing Chapter 7

 

If feasible, everyone should stop using their cards entirely if they have money problems.  Owing money to either one single creditor or many creditors will not be solved using your card again and again. This works briefly but makes things worse in the long run.

Remember the use of a card is only healthy when you can pay it completely with a part of your total monthly income.

Is it time to file for bankruptcy?

If you feel like you’re sinking in quicksand, maybe it’s time to obtain a bankruptcy discharge.

Remember that once you file for bankruptcy, most credit card companies will thoroughly examine all of your purchases and other activity on the account.

Any debt you incur after you file bankruptcy will not be part of the bankruptcy and you will be required to repay it.

Will a credit card company discharge me during my Chapter 7 bankruptcy?

The goal of bankruptcy is to relieve individuals of personal responsibility for their financial obligations. 

The success rate for discharging unsecured debts such as your cards through Chapter 7 is an amazing 95.3% (you can read more about this HERE).

Important tip

All of your unsecured creditors must be treated equally under the Bankruptcy Code. You can’t make yourself favor one credit card firm by making a large payment before submitting your bankruptcy filing.

If you do, your bankruptcy trustee might reverse the payment and distribute the money among your creditors.

Cases when a bankruptcy petition cannot be filed

Not everyone is eligible for Chapter 7 bankruptcy. You are not qualified if you have filed for bankruptcy in the last eight years.

If you have been convicted of a federal felony or fraud in the last five years, you may not be eligible.

Finally, if your previous case was dismissed due to willful failure to comply with court orders, filing for bankruptcy may be ineffective.

Fraud and bankruptcy protection

Under bankruptcy law, any debt obtained by deceit, misrepresentation, or false promises is not dischargeable.

This includes charges or cash advances you didn’t intend to pay back when you used your card.

Because they must show that you had no intention to pay back the debt when you incurred it, companies like Visa or MasterCard may have a difficult time establishing fraud in bankruptcy court.

However, in certain cases, the card company has an easier time because the legislation presumes that your charges or cash advances were fraudulent if you used the credit card for non-essential items or luxury items within the 90 days preceding the bankruptcy case filing.

When will the bankruptcy code presume fraud and nondischargeable debts?

If you’re seeking debt relief that works, keep these two sorts of costs in mind and their probable worth. The figures apply to cases filed between April 1, 2022, and March 31, 2025.

ONE. Luxury items within 90 days of bankruptcy

If you charge more than $800 on a single credit card for luxury goods or services within the 90 days before filing your bankruptcy, those debts are presumed to be nondischargeable.

TWO. Cash advances within 70 days of bankruptcy 

If you make monthly cash advances of over $1,100 in total during the 70 days preceding your bankruptcy filing, those loans are assumed to be nondischargeable.

What to do when your credit card charges may not be erased

You can’t plan to erase any new debt without getting rid of the old one. Fortunately, there are other ways to get debt relief if your card companies are not discharged from bankruptcy.

The first one is to limit your credit card use and rely solely on cash for critical purchases. An obvious goal is that you need to forget about luxury goods.

If you have a few isolated debts that are not erased in bankruptcy, you may be able to pay these off over time without having to declare bankruptcy again.

The snowball method

Use the debt avalanche approach to pay off one credit card while making minimum payments on all other cards.

You may use your excess cash to begin paying:

  • Either the highest-interest-rate debt first
  • Or the debt with the smallest amount first

If you have excellent credit, you may transfer your outstanding balance to a new card with a lower interest rate. Some cards offer 0% annual percentage rates for a certain period and do not charge any balance transfer costs for the first few months. To obtain such a no-fee, low-rate card, you’ll need a decent score.

Debt management plans

You could also sign up for a management plan that includes the services of a credit counselor. Think about using professional help to learn specific information related to filing bankruptcy.

A counselor can assist you in several ways:

  • budgeting
  • developing a strategy
  • dealing with creditors

What to do if credit card debts keep growing?

 

When your card balance just seems to keep going against you, you might consider hiring a bankruptcy lawyer to see if they can help you file a bankruptcy case.

Bankruptcy filings can be done on your own, but going to a law firm and establishing a confidential attorney-client relationship might help you go back to sleep at night.

The premises of the attorney-client relationship

This relationship is different from a counseling service. In general, attorneys handle sensitive or confidential information daily.

An attorney’s ethical duty is to maintain a confidential relationship and not to disclose information without the client’s consent.

Your lawyer can give you objective advice about the pros and cons of bankruptcy. Since attorneys evaluate every case with knowledge of the law, they can tell you what type of bankruptcy might work best for your unique circumstances.

How to get a free evaluation by a bankruptcy attorney

Unfortunately, the internet isn’t necessarily secure to find out about the available services a law firm provides. Many websites are only interested in marketing purposes so they use pre-recorded messages or other automated technology for attorney advertising.

If you are thinking about filing for bankruptcy and erasing what you owe to your cards, we recommend you do a zip code search on Google and call the attorneys that are near you. It is better not to send text messages or emails.

Go and meet the attorneys in person and ask them for details on their services. Explain your case and ask for a free evaluation. Many attorneys will usually offer you a free initial consultation.

Be honest and tell them you need professional help. If you think they can handle your case, provide details of that which worries you.

Some attorneys can easily give you references for their services with other clients. You should check these references to make sure they are legitimate.

You can also ask the attorney for an estimate of how much their services might cost you. If you file with that attorney and he or she takes your case, provide them with information about the ways you will work with them.

Don’t let your credit card debt close the doors for you. Ask for help to file for bankruptcy!

FAQ

Will a credit card company give me a new card after filing for bankruptcy?

Obtaining a new credit as soon as possible depends on the sort of bankruptcy you filed, as your bankruptcy must first be lifted. This might take anything from 6 months to 5 years.

What information can I give my bankruptcy attorney to help in my bankruptcy case?

Describe your situation in a few sentences. You may assist the bankruptcy attorney in evaluating your case by providing information regarding the kind of debts (like car loans, student loans for example), the estimated value of debts, and the important dates for your creditors.

 

When Should A Small Business File For Bankruptcy?

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There are many factors to consider when deciding whether or not to file for bankruptcy as a small business. Some common reasons why businesses seek to file bankruptcy include:

  • To discharge debt that the business is unable to pay
  • To reorganize the business and its finances
  • To sell off assets to raise money to pay creditors

If your small business is struggling to make ends meet, it may be time to consider filing for bankruptcy. Bankruptcy can be a difficult decision, but it may be the best option for your business.

What happens to a small business filing for alternative bankruptcy?

Bankruptcy is a legal procedure undertaken by businesses with significant financial problems who cannot fulfill their immediate financial obligations.

When it comes to the bankruptcy code, the objective is usually to restructure debt so that a company may recover from its situation or sell off assets and pay back debts. However, not every scenario is the same, and the prospect of creditors, stockholders, and bondholders regaining their money are determined by a variety of circumstances.

What is a small business debtor?

A “small business debtor” is a person who is engaged in commercial or business activities and has aggregate noncontingent liquidated secured and unsecured debts of less than $2,000,000 as of the filing date for the petition or the order for relief. However, this debt limit may be increased in the near future by the U.S. Congress.

It may include any affiliate or joint debtor of such person who is also a debtor under this title, and a person whose primary business is the ownership of single asset real estate.

What happens when a small business goes to bankruptcy court?

A small business going to bankruptcy court means that the company is in danger of not being able to pay its creditors. In this case, the distressed company may ask the court to either discharge (wipe out) some of its debts or reorganize its debt so it can pay them back over time.

In most situations, a Chapter 7 business bankruptcy filing will terminate the company because no method exists to protect property belonging to a separate legal entity like a limited liability company (LLC). The trustee sells the firm’s assets, pays its creditors, and shuts it down.

On the other hand, sole proprietor small business owners can only file for Chapter 13 bankruptcy protection. As a result, if your firm is a partnership, corporation, or LLC, you will not be able to proceed with its Chapter 13 case.

Sole proprietors and business bankruptcy

You can include personal and business debt in your Chapter 13 bankruptcy if you are a sole proprietor business owner, just like in a Chapter 7 bankruptcy.

If you are a sole proprietor small business owner who has money, a Chapter 13 bankruptcy might be your best alternative. You might be able to keep the company operating while paying less on nonpriority unsecured personal and business obligations such as credit card bills, utility payments, and personal loans.

The small business reorganization act

The following are some of the features of small company bankruptcy:

  • shorter deadlines
  • a lot of flexibility to negotiate with other creditors
  • a private trustee to facilitate the bankruptcy process 

The bankruptcy case is facilitated because the debtor must file a reorganization plan for the distressed business with the court’s approval within 90 days of the filing date, and in this way, the trustee may help.

Even if the disgruntled creditors do not accept the plan, the court may still approve it under bankruptcy law.

The restructuring plan must ensure that all expected disposable income for three to five years is used to pay creditors and protect the creditors’ rights. It must be just and equitable to repay creditors equally.

The small business debtors must also submit a disclosure statement to the court that includes information on the scheme for the distressed company’s creditors to consider.

A liquidation analysis that estimates proceeds and cash flow that may be gained if the firm were liquidated must be included in the disclosure statement.

The struggling businesses must also submit some projections about their ability to make payments for the benefit of creditors as indicated in the small businesses’ reorganization plan.

Additionally, once the debtor’s scheme is confirmed, any debts that existed before the confirmation date are removed.

Which business bankruptcy is better: Chapter 7 or Chapter 11?

For a small business debtor, there are several possibilities for business bankruptcy.  The business may be reorganized under Chapter 11 Subchapter V (5), or it may be liquidated under Chapter 7.

Chapter 11 bankruptcy is a business reorganization plan, often used by large businesses to help them stay active while repaying every creditor separately with a repayment plan.  However, the U.S. Congress recently enacted the Chapter 11 Subchapter V (5) bankruptcy specifically for protection and access to bankruptcy for a small businesses.

Chapter 7 bankruptcy does not need a repayment strategy, but it does require you to sell or liquidate non-exempt assets to satisfy small businesses’ obligations for the benefit of creditors.

Non-bankruptcy alternatives for distressed small businesses

The Coronavirus Aid, Relief, and Economic Security Act (2020) allowed for direct help to American small businesses.

From March 27, 2021, the CARES act raised the debt limit from $2,725,625 to $7,500,000 for Subchapter V cases under the CARES Act. This only applies to qualifying and electing Subchapter V small businesses.

If you are a small business debtor who wants to benefit from this bankruptcy protection, it may be complicated to determine your eligibility. You should seek the counsel of a bankruptcy lawyer to see if you can file for bankruptcy protection.

Bankruptcy might not be your only option as a small business owner in financial distress. You may also consider:

  • Obtaining additional financing
  • Selling your business
  • Closing your business 
  • Negotiated creditor workouts
  • Dissolution or winding down of the business

Working with a law firm as a more efficient alternative

Suppose you are planning on taking advantage of the small business reorganization act and you want to dodge the worst-case scenario. In that case, it is advisable to work with a law firm that understands small business bankruptcy business reorganizations.

Privileges of the bankruptcy attorney-client relationship

A bankruptcy attorney understands perfectly well a bankruptcy process and the bankruptcy code. For them, showing up at the bankruptcy court under financial distress is every day.

If you are still having doubts, you must remember the attorney-client relationship is confidential, which means that the lawyer cannot be forced to testify against you in court.

The attorney can also help you choose the right type of bankruptcy for your business and give you an objective opinion about your case based on your historical financials.

Your lawyer will also be able to help you develop a reorganization plan and negotiate with your creditors. You can organize with them a workout plan to get more cash, how to get new capital, how to continue operating with a debtor, and how to benefit from any automatic stay.

Additionally, if you have any questions about the bankruptcy process for business owners, your lawyer will be able to answer them.