To the average person, the word ‘bankruptcy’ has catastrophic implications. This is what we’ve made this term out to mean, but as many big businesses have demonstrated, sometimes bankruptcy can be the start of something new. Faced with the economic consequences of the COVID-19 pandemic for small businesses, then, it’s important to consider all of your options. Though you may find yourself facing the uncertainty of bankruptcy, the best thing your business can do is to educate yourself on next steps and keep moving forward.
Make A Plan
There are multiple forms of bankruptcy, and choosing the right one for your business is the first step towards making a fresh start. With this in mind, most businesses hoping to chart a new pathway choose to file for Chapter 11 bankruptcy; in fact, 2020 saw a 26% jump in Chapter 11 bankruptcy filings over the previous year for this exact reason.
The most distinctive feature of Chapter 11 bankruptcy is that, unlike Chapter 7 or liquidation bankruptcy, it allows your business to reorganize its debts and try a new approach in hopes of being profitable. It’s not always easy, though. As bankruptcy lawyer Rowdy Williams explains, “Any Chapter 11 arrangement requires approval by your creditors, as well as the courts. That means that you need to have a clear plan for how you’ll change your business going forward so that you can pay your debts – and not every creditor is so easy to convince.”
New Options Available
Because of the COVID-19 related spike in bankruptcy filings, the government had to offer added support or risk serious economic consequences, and this makes it a particularly good time to file for bankruptcy if your business is underwater. In particular, a larger number of businesses now qualify for relief and are classified as small businesses for reorganization purposes under the CARES Act.
Because it can take some time to navigate bankruptcy filings, there’s an expectation that bankruptcy filings could continue to increase, especially as the impact of other economic incentive programs and stimulus packages fall away. Your bankruptcy lawyer can help you determine what programs are appropriate for your business, but if you’re filing for Chapter 11 bankruptcy, you need to emphasize programs that will help you reorient your business so that you’re ready for that fresh start.
Sidestepping The Issues
Sometimes business owners can avoid Chapter 11 bankruptcy by filing for personal, non-liquidation bankruptcy via Chapter 13 bankruptcy instead. This requires individual restructuring and can mean selling a lot of your personal possessions, but sometimes it’s worth giving that up to save your business.
It takes bravery to restart your business while mired in the financial issues that led you to bankruptcy to begin with, but it can be done. If you have multiple locations, it may mean closing one and funneling all of your business through a single site, or it may mean cutting staff or adding new services. There are a lot of options but doing things differently is the only way to recover, even as the pandemic recedes into the background.