Businesses Seek Bankruptcy Protection Due to Coronavirus

With so many businesses being shuttered during the COVID-19 pandemic, it’s no surprise that even well-established major corporations are pursuing bankruptcy.  J. Crew was among the first of the major corporations to file for bankruptcy amidst the Coronavirus shutdown, marking an end of an era for a major American apparel retailer with international acclaim. Its retail services were deemed non-essential and, with consumer budgets tighter than ever, it was hit hard, along with much of the retail industry.

Other giants who have filed for bankruptcy in recent months include Pier One Imports, Art Van Furniture, and even Whiting Petroleum Company, who experienced huge losses from the crash in oil prices. Unfortunately, many more are projected to suffer the same fate.  

While it’s not just retail that is (and will be) impacted by the Coronavirus, there are some factors to consider when looking at some of the industries most heavily impacted by a global pandemic. Luxury retail and travel-related services will likely continue to experience the biggest hardships.

The early statistics on the economic fallout of COVID-19 are in and, in addition to retail, have identified the following industries as being the hardest hit so far

Airlines:

This one may seem obvious, since most borders are currently closed and only essential travel is allowed.  However, even in spite of a $58 billion dollar bailout from the federal government, many airlines are projected to file for bankruptcy in the coming months. This also has projected downstream effects for the aerospace industry, as well. 

Casinos and Gaming:

With most casinos and gaming facilities shut down completely, this entire industry is at a stand still, until it’s time to safely re-open those sectors of the economy. Even then, it will be a slow start, while consumer confidence gradually re-builds.

Automotive:

The automotive industry, including retail parts and manufacturing, is also seeing the impact of COVID-19. Consumers are holding off on non-essential repairs, which means automotive shops and dealerships aren’t as busy. Unfortunately, it also means that the automotive parts industry has seen a huge decline in their demand. Factory shutdowns due to the pandemic have also played a factor in parts and equipment availability, even for businesses which are deemed essential. 

Oil and Gas Drilling:

With the demand for travel of any kind being lower than it has been in decades, oil prices dropped precipitously in recent months. It’s little surprise that these corporations are also experiencing financial hardship during the Coronavirus. 

What do these large bankruptcies mean for small business owners?

There is good news for small businesses considering bankruptcy during this time. Some of the COVID-19-related changes concern federal bankruptcy law.  This is, in part, owing to the record number of large corporations having to file for bankruptcy protection at this time. 

Many small businesses may even find bankruptcy as a way to stay afloat during this pandemic, owing to recent changes in Chapter 11 bankruptcy filing guidelines.  The Small Business Reorganization Act (SBRA), for example, made small businesses with under $2.7 million in debt eligible for debt restructuring. The recent federal CARES Act for economic stimulus upped that threshold to $7.5 million to qualify for Chapter 11. 

If you’re wondering whether your business could be eligible for debt restructuring during COVID-19, contact the Law Offices of Bill Payne, P.C., an experienced bankruptcy attorney with more than 30 years helping businesses learn what their options are. There’s no need to drown in debt during a pandemic, and we are here to help you through that process with a free consultation to discuss your unique situation.

Signs You Should Consider Chapter 11 Bankruptcy

You have probably heard the term “Chapter 11 bankruptcy” in the news referring to large companies in financial trouble. In recent years, companies like General Motors, K-Mart, and United Airlines have filed for Chapter 11 bankruptcy. While this type of bankruptcy filing isn’t usually available to private individuals, it may be an option for some. Chapter 11 filings mostly relate to business operations. Here’s what you need to know about how to qualify for Chapter 11 bankruptcy, what it entails, and what it means for the future of a business that files for it.

How to File Chapter 11 Bankruptcy

Often called a reorganization bankruptcy, Chapter 11 bankruptcy allows a company to handle insolvency by reorganizing or discharging debt. In most cases, Chapter 11 bankruptcy filings are voluntary; a business debtor acknowledges financial trouble that will lead to the company’s ruin and seeks out debt relief from bankruptcy court. In rare cases, groups of creditors may band together to pressure an insolvent debtor into filing for Chapter 11 bankruptcy.

Entities that file for Chapter 11 bankruptcy typically include corporations, partnerships, and limited liability companies. In some cases, individuals may qualify for Chapter 11 bankruptcy if they do not qualify for Chapter 7 or Chapter 13 bankruptcy filing. However, individuals filing for bankruptcy face a more difficult process and added risk by pursuing Chapter 11 bankruptcy over Chapter 7 or Chapter 13.

Signs to Consider Chapter 11 Bankruptcy

Chapter 11 bankruptcy can offer a company the chance to reorganize debt and remain in operation, but sometimes it can simply be a stepping stone to closing down an insolvent business with as little fallout as possible. Some signs that should encourage business owners to consider Chapter 11 bankruptcy include:

  • Long-term cash flow problems. If cash flow is a perpetual problem, given that debts are continually accruing interest, you could dig yourself into a bigger hole by fighting the inevitable.
  • Risk to personal assets. In most cases, bankruptcy is a means to protect your personal assets from the effects of your unpaid debts. If you’ve co-mingled any of your personal assets with your business, filing Chapter 11 bankruptcy may be the only way to save some of what you personally own.
  • No opportunity for alternative resolution. You may be able to negotiate with some creditors, refinance existing debts, or explore debt consolidation. If there is a chance these methods could enable your company to continue and ultimately recover, you may avoid bankruptcy. If these options aren’t possible or your creditors aren’t willing to work with you, Chapter 11 bankruptcy is likely the next best option.
  • Potential to continue. In most cases, the companies most likely to file for Chapter 11 bankruptcy are those with the potential to eventually recover from the debt and continue their business operations. If current debt problems pose problems for your business’s future, filing for Chapter 11 bankruptcy sooner rather than later may help your company survive.

Chapter 11 bankruptcy filings don’t always ensure the filing company will survive. In many cases, creditors simply consider it easier to liquidate the debtor’s business and recover as much as they can. Smaller companies typically struggle the most with Chapter 11 bankruptcy filings, but larger companies can and have succeeded with their filings and remained in business.   If you are experiencing these signs, set up a free consultation with bankruptcy attorney Bill F. Payne.  He can explain your options and help determine a plan of action for your business.