Yesterday I wrote about the sharp increase in small-business bankruptcy cases, so I decided it might be helpful to supply a list of suggestions that would be useful to small businesses that are in financial trouble.

• If your company has a pension plan do not touch it. If you do, you will risk being charged a steep penalty plus the money you withdraw will be taxed. In addition, the plan might be disqualified.
• Do not worry about the clause commonly placed in commercial leases saying you are automatically in default if you file for bankruptcy.  These clauses are usually not enforceable. If you file bankruptcy utility companies cannot make it an excuse for terminating your utilities.
• Do not keep your checking and other accounts in the same bank you are indebted to because your loan agreement may give the bank the right to take your funds without notice.
• If you are leasing equipment and don’t intend to retain it if you file for bankruptcy, consider giving it back to the leasing company before you file. If you do return it and the equipment is currently worth less than what you owe under the lease, this deficiency will be discharged in bankruptcy. If you do decide to keep the leased property, you will need to continue making payments on time-this obligation will not be discharged by going through bankruptcy.
• When it becomes clear that you won’t have enough revenue to pay your bills, cut expenses to the bone. Collect as much of the money owed to you as possible. Obviously, you have to pay taxes and overhead costs, but work with your creditors and suppliers to delay paying other bills.
• Be sure to pay all payroll taxes on time. State tax authorities can hold you personally liable for these taxes and penalize you.
• Be meticulously honest about your debts. Otherwise, the law may decide your debts have been obtained fraudulently. Sometimes, feeling desperate, a business owner will try to protect personal assets by hiding them or giving them to friends and relatives. Creditors are experienced at ferreting out such hidden assets, thus these tactics are ineffective and may result in civil and even criminal charges of fraud.
• The Bankruptcy Code frowns on the payment of some creditors and not others; that is considered to be making preferential payments. If you file for bankruptcy, all payments you make during the prior year will be examined by creditors to make sure that some creditors weren’t given an unfair advantage.
• Consider ways to continue making insurance payments. If your business winds up in a Chapter 11 reorganization or you end up in a Chapter 13 reorganization, it may be difficult to find an insurance carrier who will renew your business coverage or will issue a new policy. It would be wise to have insurance in place that extends at least a year into the future. If you pay on time the insurance cannot be canceled.