Dealing With Own or Associated Parties' Business Bankruptcy

 Every business establishes itself to earn profits and achieve its vision and mission. However, there are many hurdles in the way acting as roadblocks and, if not treated properly, can lead to the end of the business. Every year several firms declare insolvency and bankruptcy due to poor business bookkeeping or other reasons. Bankruptcy affects not just one company but every associated party. Let us first know what bankruptcy means.  

 

Bankruptcy refers to a company's inability to continue and pay off its debts. In such cases, they have to file a petition with the court to stop its creditors from pursuing them for their debts. There is administration bankruptcy which involves appointing a new administrator who can get the company out of deep waters to stay afloat. In such cases, businesses do not close, but the accounts receivable management changes. Bankruptcy affects the business and its owners as their credibility and reputation reduce in the market. For associated parties like creditors, they have to forget the amount they were to receive and put it into bad debts. Customers and the general public are also affected by the bankruptcy of a particular organization.  

 

If you are a creditor of a company that declared bankruptcy, you can do the following:  

 

• Determine the type of creditor: 

 

First of all, you must know which type of creditor you are to the company. The different types of creditors include:  

• Preferential creditors: They get priority and may consist of taxation authorities and wages for employees.  

• Secured creditors: These creditors have some assets as collateral for the debt to the company. They may be financial institutes that lend loans to the company and take assets like cars, buildings, machines, etc.  

• Unsecured creditors: These creditors do not have any assets to back their debts like suppliers and contractors. They come at the last of its priority list to return its debts.  

 

• Filing claim: 

 

Once a company files bankruptcy, all the creditors get a notice to prove in writing why the company declaring bankruptcy owes you money. You have to file these claims with proper documentation within the given timeline to ensure you get the payment. In such cases, your business bookkeeping must give adequate attention to claim to file and stop any collection efforts towards the bankrupt firm. To receive such claims from the court, you must be on the creditors' list of the company. However, these claims do not assure that you will receive your dues fully or partially.