I’ve helped a lot of businesses and individuals through bankruptcy. It’s never an ideal situation, but there are times when declaring bankruptcy makes sense—due to unforeseen medical expenses or, in the case of a business, disruptions caused by supply chain problems, labor shortages or a global pandemic. When cash flow becomes a real problem and the survival of your business is on the line, relief from a Chapter 11 bankruptcy may be the smartest and fairest move for all parties.
Not all bankruptcies are created equal
There are several types of bankruptcy proceedings. Chapter 7 leads to the complete liquidation of a person’s or business’s assets to pay off creditors. Chapter 13 is a way to reorganize debt for individuals. In this article, I want to focus on Chapter 11.
A Chapter 11 bankruptcy is like Chapter 13 for companies. You are not shutting down your business, but you’ve found your cash flow is not keeping pace with your obligations. Rather than leave your creditors hanging, you wish to make a plan to reorganize your debts, not completely discharge them. I like to think of Chapter 11 as a lifeline for a drowning business that could be sustainable once it gets out of debt. In the meantime, this bankruptcy places an immediate hold on your obligations, giving you breathing room.
However, bankruptcy itself can be a daunting and expensive endeavor. In 2019, Congress realized the bankruptcy codes that work for General Motors don’t necessarily work for small businesses. That’s why they passed Subchapter V (five).
Introducing Chapter 11 Subchapter V
In February, 2020, this addition to the U.S. Bankruptcy Code took effect. It drastically streamlines Chapter 11 for businesses whose debt load is less than $7.5 million. Streamlining the process means fewer hours of legal work and that means it’s less expensive for those who qualify.
A Chapter 11 Subchapter V bankruptcy has made sense for most of the businesses I’ve helped through the process. Having a more efficient, convenient way to reorganize debt sometimes makes the difference between reopening and shutting down for good. It’s allowed me to help businesses firm up plans and keep working while they get a “pause” on obligations piling up.
Do I need to declare bankruptcy?
If you find any of these are true, we need to talk:
- Your cash flow consistently fails to cover debts
- You have missed a number of payments to creditors
- You have been threatened with lawsuits
- Repossession or foreclosure of assets or property is imminent
- You are behind on tax payments
A lot of business owners might think they can hold out until windfalls arrive. That itself is a risky bet. The stress of looming collections is like an 800 pound gorilla on that owner’s back. Bankruptcy is a way to take that gorilla and put it partially on my back. As a bankruptcy attorney, I will help you analyze your situation and draw up a plan to reorganize your obligations, then present it to the court.
If you’re still not sure, call me for a free consultation. You can “kick the tires” and see if this is a step you want to take. I’ve helped many businesses through Chapter 11 and Subchapter V bankruptcies, many right here in the Roanoke Valley. It’s my goal to help my neighbors and fellow business owners stay open, if possible.
