Article

How to navigate bankruptcy if the coronavirus wrecks your business.

This article brings up some interesting points. It is difficult for business owners to decide to claim bankruptcy. Sometimes bankruptcy can be the only option. If a business owner wants to continue the business but restructure the firm's debts then the most appropriate route for the business is filing a Chapter 11. Chapter 11 filings allow the owner to essentially become the company's trustee and continue operating the business according to a plan that must be approved by the US Trustee and the company's creditors. The problem with Chapter 11s is that they can be prohibitively expensive, tens of thousands of dollars at least.

Recently, a new form of filing was passed in March. This form is a Chapter 5 filing and it was made to make it easier for small businesses to file bankruptcy and continue operation without the onerous fees associated with a Chapter 11. There are limitations specifically how much debt a company is holding, but most small businesses should qualify. 

Additionally, most small business owners may not be done with filing a Chapter 11 or 5 to reorganize their company's debts. It is common for smaller businesses to have their owners sign "Personal Guarantees." These guarantees survive the bankruptcy of the company and the debt is still attached to the owner at an individual level. To avoid the guarantee individuals may have to file either Chapter 7 or Chapter 13. It is common that business owners file bankruptcy for both the business and the individual.

Chapter 7 can entirely erase the personal guarantee, but it comes at the cost of liquidation of all the individuals assets to make payments to the creditors. This can have negative repercussions for assets like cars and houses.

Chapter 13 may or may not entirely erase the personal guarantee, however a Chapter 13 reorganization plan will allow the individual a three to five year plan to restructure and pay off the burdensome debt load. This route also allows the individual to maintain essential assets like their home and vehicle.

If your company has been damaged due to the coronavirus reach out to the Smith Law Firm LLC to see if we can help you through these uncertain times.