How to Handle Bankruptcy

Although no business owner ever wants to file for bankruptcy, it happens. Learn what to expect if you ever find yourself in the unfortunate situation.

By Savannah Waszczuk

Jul 2017

How to handle bankruptcy.

Things don’t always work out the way they were planned. This isn’t always a bad thing, but when it comes to owning and operating a business—and being financially successful in that business—you definitely hope that those original plans live to be true. Attorneys, like Dan Nelson, a partner at Lathrop & Gage LLP, are equipped to help you if they don’t. 

Nelson has been practicing law for 34 years, and he frequently works with clients who are in struggling with bankruptcy. “I started representing people who filed for bankruptcy very early in my career,” Nelson says. He joined Lathrop & Gage some 20 years ago, which is when he shifted his main focus to representing creditors and banks, and he also served as a trustee in bankruptcy for 22 years. 

“What we would do first is ask the prospective client to bring us the most recent financial information that they have,” Nelson says. This includes two to three years’ worth of tax returns as well as a year or so of financial statements. “We want this so we can get some idea of what the problem is,” he says. 

Next an attorney analyzes the information and determines what might work for the client. This includes checking if a Chapter 11 Bankruptcy, which allows the debtor to propose a plan of reorganization to keep its business alive and pay creditors over time, is feasible for the client. 

Frequently attorneys don’t have the luxury of time in the bankruptcy process, so they might initially deal with fighting off things such as foreclosures and wage garnishments and analyze later. “The quicker a client gets to us, the more options they have,” Nelson says. “Bankruptcy is kind of a last resort.”

In most cases, the client has 120 days to file a plan of how they’re going to restructure or figure out how to pay their debts, whether it be by reorganizing, selling assets or a combination of the two. The plan is then served to all creditors, and there’s a voting process to approve or reject it. If the plan is approved, it becomes binding and the debtor is responsible for making approved payments. If the plan is not approved, the case is dismissed or converted to Chapter 7 Bankruptcy and clients must consider other options. 

The final step for bankruptcy clients is simply sticking to their repayment plan, making sure not to miss payments and, of course, paying attention to accounting information and correcting the mistakes that got them there in the first place. It’s also important for clients to work on their relationships with lenders, because they might need them again in the future. “After you’ve operated successfully under a new plan for a year or two, sometimes you can find a lender who is willing to lend again,” Nelson says. “It’s all about relationships.”