Business creditors can be a problem for small businesses. In some cases, the business owner may have borrowed money to start their business and then stopped paying it back. Business creditors often target small businesses in order to collect on debts that were originally taken out against them by the owner.
If you find yourself in a position where you need to protect your assets from business creditors, there are several steps you can take to minimize the impact of any claims against them. Here are seven asset protection strategies:
1. Ensure that all debts are paid on time
Late payments can be used as evidence of bad character by some creditors, so it’s important to keep accurate records about when payments were made and whether late fees were charged on any past-due invoices.
2. Pay all bills in writing
Many businesses have contracts with suppliers that require written confirmation of payment before the supplier will ship products or services. In these cases, make sure that written documentation is available when needed by the creditor (the court) as proof that payment was made at the time indicated on the invoice.
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3. Save as much money as possible before filing for bankruptcy
This can take the form of a retirement account, which you should use to pay off all debts except for those related to your business. You will also want an emergency fund in case of an unexpected illness or car accident that requires cash for medical bills or car repairs.
4. Do not sell assets unless absolutely necessary
It is easier (and cheaper) to keep your assets during this process than it is to try and get them back later on with legal fees and other costs that might have been avoided if you’d tried harder beforehand.
5. Get a fair settlement offer
Businesses and their creditors have different interests in a negotiated settlement. A creditor may want to get paid quickly and won’t be concerned about getting paid less than it would have taken for them to sue. In contrast, a business may see itself as having more at stake and fight for full value of its assets.
Don’t underestimate the time it takes to negotiate a settlement with creditors. It can take months or even years before an agreement is reached — even after a lawsuit has been filed — so be prepared for that possibility when you start the process.
6. Ensure that all assets are properly documented in case of bankruptcy proceedings
To avoid any disputes later on, it is important that you keep track of all assets with proper documentation. This includes keeping a record of all accounts, including their balance and other relevant details. You should also ensure that the records are kept safe in case they need to be used as evidence during court proceedings.
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7. Have an inventory list prepared
Inventory lists are important because they help you identify what exactly your business has at its disposal so that if anything goes wrong or gets stolen, you can easily determine whether it can be traced back to your company or not. An inventory list also helps in making sure that each item that is being used belongs to your company and not someone else’s business who may have decided to use it for its own purposes without paying for it first.