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Defending the Small Business - Part 12 It's Not As Bad As It Looks 11/3/2008 8:15:45 PM
Fortunately there are many ways to defend the small business in trouble and buy the necessary time to get things turned around. Chill, It's No Big Deal
Get a nasty letter in the mail?
Send us money or we'll give you hell?
Don't lose your cool, don't get upset
Chill, it's no big deal
Creditor called and wants his bread?
Got to have it now, no more said?
Don't get upset, don't be depressed
Chill, it's no big deal
Constable come knocking at your door?
You've been sued, can't take no more?
Take a deep breath, don't despair
Chill, it's no big deal
Didn't pay your taxes? Owe a lot?
Accounts been seized. Now your checks are hot?
Take a walk, get some air
Chill, it's no big deal
Rent is late? Landlord lookin' for the cash?
Wants the rent or you're out on your ass
Take two aspirin and go to bed
Chill, it's no big deal
'Cause when your world starts to crumble
Your lawyer will be sure you don't stumble
He'll smile as he takes your cash and tell you
Chill, it's no big deal
Before I discuss the fundamentals of successfully operating a small business successfully, I want to discuss what to do when the lights go out, the landlord locks you out, the IRS attaches your bank, account or some other catastrophic event occurs. Do you fold up your tent and start looking for a new job? Or are there ways to salvage the business you have worked so hard to build and that is your most precious asset?
Fortunately, most situations look a lot worse than they are. I often receive frantic calls from clients who think their world has come to an end. Faced with IRS garnishment, lawsuits, foreclosures, repossessions, or attachments, they feel like their world is collapsing around them and that all hope has been lost. One such case was an owner of a cab company who called me, frantic, one afternoon after the constable had just carted off everything in her offices.
She had made a fundamental mistake in ignoring a lawsuit that had been filed against her. It's amazing how many SBO think that if they don't pick up their certified mail or ignore a citation served upon them, that nothing will happen to them. This head-in-the-sand mentality is a sure ticket to disaster, as my client found out when the constable showed up with two big trucks to haul away all her personal property.
Running a cab company with no radio equipment or telephones is rather difficult, so it was critical to get everything returned immediately. I only know of two ways to accomplish that: pay off the judgment that is being executed or file a Chapter 11. Since my client was essentially broke, Chapter 11 was the only thing that we could do. Several days later our client's property was returned and she was back in business.
The key to surviving any catastrophe is to keep calm and get professional help immediately. If it's a medical emergency, you call an ambulance or go to the emergency room. When you get served with a lawsuit you should immediately call an attorney so that the matter can be defended. Don't think you can be your own attorney. The law is very complicated and the procedure for prosecuting and defending lawsuits is very precise. An individual without legal training isn't going to be able to put up an effective defense. One of my clients found this out the hard way.
One evening I was just pulling into my garage when my cell phone rang. I answered the call and it was a frantic SBO who had just had his business put into a receivership. A receivership is where a third party, appointed by the court, is placed into control of a business for the benefit of creditors. This usually ends up in the liquidation of the business or a Chapter 7 bankruptcy. This SBO had been rather rudely put out of business.
When I asked him how it happened that he was put in receivership, he confessed that he had been sued and tried to defend the suit himself to save money. Unfortunately, the opposing counsel was a ruthless attorney who walked right over him in court and soon had control of his business. Receiverships are rather uncommon today, and had my client retained an attorney, he probably would have been able to successfully avoid the appointment of the receiver. Again, in this situation a Chapter 11 was the only way to stop the receivership and get this client back in control of his business.
When calamity strikes, the key to successfully dealing with it is to get an attorney immediately, identify your adversaries, weigh all the options available, and then pick an appropriate course of action.
Determining your adversaries is pretty easy as they are usually banging on the door. But sometimes adversaries aren't aggressive and may not have made any noise yet. It's important to do a complete analysis of all your creditors and contractual obligations to see what other potential claims there might be coming your way.
For instance, the immediate crisis may be an IRS garnishment of your bank account. Although this is annoying and will cost you whatever was in the bank account, it's not a devastating blow. But if a business owner can't pay his payroll taxes it's a good sign he's got other problems, too. The landlord may be about to lock him out or his vehicles may be in jeopardy of being repossessed.
Once you decide on a course of action, don't delay it's implementation. Time is always of the essence when it comes to defending yourself from attack. For instance, if you owe income taxes, the timing of filing your bankruptcy might be critical. Normally taxes are a priority debt but if they are more than three years old, they become an unsecured debt. It's always desirable to have taxes classified as unsecured because that means they don't have to be paid in full. Taxes, however, become secured if the government files a federal tax lien. Fortunately, the IRS usually isn't too quick to file these federal tax liens, but once they do file them, the taxpayer will likely have to pay the full taxes, plus penalty and interest. This happened in a recent case when a client came to see us about a Chapter 7 bankruptcy. His only creditor was the IRS, and most of the taxes were over three years old. Unfortunately, he had waited several months to deal with the problem. After we had all the papers together and were about to file the bankruptcy, he got a notice that a federal tax lien had been filed. With a lien filed, the bankruptcy wouldn't do him any good because the taxes were now secured by the equity in his homestead.
Another instance in which time is critical is with vehicles that are in danger of repossession. Often people wait until the repo man is stalking them before they contact us. A Chapter 13 usually solves this type of creditor problem, but it's important to file it before the vehicle is taken. Once the car is gone, there is danger that it can be sold and lost forever.
Normally a bank or finance company only has to give a borrower ten days notice of a private sale. If the sale takes place before the Chapter 13 is filed, the car may be lost. If the car is still in the possession of the bank or finance company when the bankruptcy is filed, then the car can't be sold without court permission. This usually affords the borrower the opportunity to get the car back but, if the creditor resists, another lawsuit or adversary proceeding, called a turnover, may have to be instituted. Of course, this involves time and money and may not be successful.
So the bottom line is that a small business owner should always react quickly to the first sign of trouble and deal with it quickly and effectively with professional help.
