NYC bankruptcy attorney at the Law Office of William Waldner whose sole focus is in the areas of chapter 7 and chapter 13 bankruptcy cases.
For all its ups and downs — or perhaps its downs and downs — 2020 had one odd outlier of positivity: there were fewer bankruptcy filings by both businesses and individuals than in 2019 and fewer than had been projected before the pandemic took hold. As last year wasn’t exactly normal, especially for small businesses and their owners, the unexpectedly low rate of bankruptcies is all the more surprising.
There are several factors that likely played a role here. Landlords and lenders have been more flexible than usual as shutdowns hit everybody unexpectedly, and the stock market has been more resilient this year than in our last major downturn, too. Both of these have made it easier to keep the lights on, at home and at work. Legislation like the CARES Act and other pandemic-related assistance programs also provided a boost, with loans, eviction moratoriums and unemployment payments helping many stave off dissolution.
What further assistance will be provided by legislation is anyone’s guess, of course, and I won’t hazard one here, but any assistance is likely to be scaled back from what we saw in 2020. It’s also hard to predict what a return to “normal” economic activity will look like, with many businesses facing a long-term change in their relationships with customers, suppliers and lenders. The result might be that a lot of the businesses that averted bankruptcy in 2020 will end up filing in 2021.
If you’re among the small business owners contemplating a bankruptcy — for your business or as an individual — here’s why a potential bankruptcy boom might matter for you and what you can do about it.
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Courts may be backlogged, so start assessing options now.
Bankruptcy courts tend to be fairly efficient (though it may not always feel that way), but a sudden rise in bankruptcy filings could cause delays for individual cases. You’ll get the initial protections of bankruptcy as soon as you file, so creditors will have to wait to collect until your case moves forward regardless of any delays. For most individuals and business owners, though, the faster the bankruptcy can move, the better.
That means filing sooner rather than later if bankruptcy proves your best option. To make that call, you’ll need to gather up both your business and your personal financials. Depending on your individual situation, filing personal bankruptcy and keeping your business intact may be a viable option; for others, a business bankruptcy that leaves your personal finances intact may be better. You’ll want a whole-picture analysis before you pull the trigger.
If you and your advisors agree that bankruptcy will let you put your best financial foot forward, you’ll want to file ASAP. Few, if any, in-person conferences will need to happen, so things can proceed with some efficiency, even if distancing continues. However, the court still needs to review and approve things occasionally, and this is where you might run into bottlenecks. The sooner you get your claim filed, the lower the chance you’ll have to stop and wait in line (and the less time you’ll have to wait for results).
Stick to experienced financial and legal advisors.
Just like courts, bankruptcy and financial advisers may find themselves facing heavier-than-usual demand. As with the courts, the faster you get in touch with your advisors, the sooner they’ll be able to get you scheduled and taken care of. So again, getting the ball rolling ASAP is a good idea.
There’s a more important consideration than timeline when choosing professionals to work with, though. A spike in bankruptcies will also mean a spike in people (lawyers, accountants and others) offering bankruptcy services. While any licensed legal or financial professional is allowed to assist you with your bankruptcy, that doesn’t mean they’re all equally able to offer assistance. Now, more than ever, going with someone experienced in working with businesses and personal financial situations similar to your own is going to be essential.
Your local chamber of commerce or other business-oriented organization might be a good place to check for recommendations. You may also want to speak with 3-4 lawyers — and if you don’t have an accountant you already know and trust, 3-4 of them as well — to gauge not only how comfortable they are with bankruptcies like yours but also how comfortable you feel working with them.
While bankruptcy is often faster and less painful than the alternative, it isn’t easy. Having a partner who knows the road you’re treading and who knows all the changes to bankruptcy law relevant in 2021 makes it a whole lot easier.
Take advantage of Subchapter V.
As a final note, remember that the new Subchapter V bankruptcy option for small businesses offers enhanced protections for the first few months of 2021. These enhancements may not last — that’s up to Congress — so act now to take advantage.
The information provided here is not legal advice and does not purport to be a substitute for the advice of counsel on any specific matter. For legal advice, you should consult with an attorney concerning your specific situation.