When should a small business consider filing for bankruptcy?
If you are considering bankruptcy, taking out additional loans or simply closing your business for good, contact a business bankruptcy attorney to discuss your options.
As the coronavirus pandemic continues to spread throughout North Carolina, business owners are faced with making very difficult decisions. Should they take out more loans to pay their overhead? File for bankruptcy? Or, should they close their doors for good.
According to the American Bankruptcy Institute, the total commercial Chapter 11 bankruptcy filings increased 24 percent in April over the previous year. In May, there was a 42 percent increase.
Whereas many business owners may choose to wind down their business and close the doors for good, others may see a viable future. Bankruptcy may provide the means to remain open in the face of economic downturn.
Can the Small Business Restructuring Act help?
For many small businesses, a bankruptcy law that came into effect in February 2020 - known as the Small Business Restructuring Act - could help them weather the COVID-19 pandemic.
Previously, small businesses struggling to repay debt only had one option: Chapter 11 bankruptcy. Under Chapter 11, a business can restructure their debts and, in some cases, have debt discharged. In simpler terms, the process allows businesses to negotiate with their creditors to receive a fresh financial start.
Traditionally, the Chapter 11 process is often best suited for larger businesses. But under the new rules, businesses with less than $2,73 million in debt can reorganize their debt with several changes. For example, a judge can enforce a restructuring plan and the business owner can continue to operate the business.
Are there other options to filing for bankruptcy?
Every business situation is different, and what is right for one business may not be right for another. That is why it is critical to explore all options with a business bankruptcy attorney. While Chapter 11 can help you reorganize your debt and help you stay in business, there are other options available to you.
For example, you could take out a loan to pay off your debt. However, this should only be done if you can identify future revenue that will help you pay off the loan. If you cannot, then borrowing more money may make the current situation worse.
You may also choose to close down your business. You do not need to file for bankruptcy in order to close your business if you can pay off all of your debts. For instance, you may be able to negotiate with your creditors without having to file for bankruptcy. In any event, you should hire an attorney to help you properly wind down operations.
Is filing for bankruptcy right for your business?
Even with loans, grants and other forms of financial support from the state and federal governments, many business owners are facing daunting challenges in the face of COVID-19. According to one poll by the U.S. Chamber of Commerce, more than 40 percent of the nation’s 30 million small businesses could close permanently due to the pandemic. For those that are seeking a path forward in spite of mounting debt and reduced income, bankruptcy may be the best option.
If you are considering bankruptcy, taking out additional loans or simply closing your business for good, contact a business bankruptcy attorney to discuss your options. Narron Wenzel offers free consultations for businesses experiencing hardship during this time. Together, we will look at your business’s financial situation and identify the best path forward for you.