The coronavirus (COVID-19) pandemic has been hard on businesses. During the shutdown, countless South Florida businesses were forced to shutter or adjust to a new normal, bringing in significantly less income than before. Many of these business owners have also been compelled to make some tough decisions, including the decision on whether to proceed with bankruptcy.
Bankruptcy can be beneficial for businesses that are struggling during this difficult time. The bankruptcy framework and the automatic stay that occurs immediately upon filing for bankruptcy offers relief that individuals and business owners desperately need.
Two different forms of bankruptcy are available to business owners. Which chapter is filed depends on the specifics of the business and what exactly the business owner hopes to accomplish by filing for bankruptcy.
The COVID-19 pandemic has forced many business owners to make the difficult decision to close permanently. Chapter 7 bankruptcy can be helpful if the business intends to shut down permanently at the end of the case. During this type of bankruptcy, the assets of the business will be liquidated by the bankruptcy trustee. The proceeds from this liquidation will then be distributed to creditors of the business. If the business owner has no intention of continuing the business, this form of bankruptcy can be quite effective since it is relatively quick and will bar applicable business debts and creditor claims in the future.
A business operating as a sole proprietorship may need to take a different route. Under a sole proprietorship, the individual who owns the business and the business itself are essentially the same entity. The sole proprietor is entitled to all profits and is personally responsible for all of the business’s debts, losses, and liabilities. Depending on the circumstances, the better route may be to file under Chapter 7 personal bankruptcy or under a Chapter 13 reorganization bankruptcy.
If the business owner wishes to continue operations after the bankruptcy case, Chapter 11 may be the better option. This form of bankruptcy allows the business to restructure its debts through a plan approved by the court and conducted with the oversight of the U.S. Bankruptcy Trustee. Previously, this form of bankruptcy has been difficult to afford, but changes made through the Small Business Reorganization Act (SBRA) have made the process easier for many small businesses. Further, the CARES Act passed by Congress in March also raised the debt limit under the SBRA, allowing more businesses to be able to file for Chapter 11.
A Chapter 11 bankruptcy allows the business to restructure debts, giving the business reprieve from collection actions. Many businesses have been forced to shut their doors, thereby closing off their income stream. Without the ability to pay on their debts that were outstanding prior to the COVID-19 outbreak, many of them have quickly fallen into default. Proceeding with bankruptcy can be a better way to deal with these debts in lieu of defaulting on them and falling further into debt. While it may be possible that the business will be able to bounce back once the crisis begins to dissipate, it is not clear how quickly the economy will recover and what businesses will suffer the most.
For business owners who are struggling to figure out how to proceed, it is recommended that these individuals speak with a bankruptcy attorney to discuss what options are available. At the very least, this free consultation can give the person peace of mind and can alleviate many of the fears and uncertainties resulting from the COVID-19 crisis.
If you have questions on this topic or are in financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at www.miamibankruptcy.com.