June 9, 2020

A Must Read For Small Business Owners Considering Bankruptcy During The Coronavirus Pandemic.

Intro: Coronavirus Pandemic, Small Business, and Toledo Consumers

The Coronavirus Pandemic has caused serious disruptions in our lives.  A short while ago we might have found ourselves attending a Toledo Walleye hockey game or enjoying a concert in Detroit’s Ford Field?  Today, some of us wouldn’t even consider buying a ticket to such crowded events.  These larger scale events make our daily news feeds, but stop to consider all the layers of people, including local small business owners, that are affected as well.

Together we are getting through this, but at what cost to our local small businesses?  For these larger events to occur, many local small business owners have a connection.  Food service vendors, janitorial services, private security companies, local event sponsors, and retailers supplying their goods and services, are all taking a hit.  Not to mention all the local small businesses who sell their goods and services to the previous companies.   The coronavirus pandemic is causing havoc throughout the entire supply chain, all the way down to most local levels, including our friends and neighbors. 

While social distancing guidelines and other COVID-19 restrictions in Ohio are beginning to slowly ease, our local entrepreneurs continue to adapt to evolving challenges.  Restaurants are opening, but they are limited to partial capacity.  It is becoming the new normal to see a waiting line outside a local clothing boutique or sports bar.  Successfully operating a small business is tough, but expecting one to survive while limiting the number of customers it can serve, is much tougher.  As a result, local small business owners are buying less supplies from vendors, reducing their general spending, and are cutting the hours of workers.  Again, remembering that each of these actions affects another layer of consumers, other businesses, and our neighbors.

There Are Options Available to Small Business Owners:

While bankruptcy filings are forecasted to spike later this year, small business owners should consider all available options and find a customized plan that fits their personal situation.  While bankruptcy relief may be appropriate in certain circumstances, other small business owners may be able to find non-bankruptcy options as well.

Small business owners with low debt amounts and minimal assets, may find the choice to be as simple as whether or not to wind down business operations and close.  One example might include a home-based small business who orders its inventory as it is needed and then sells directly to a client.

Small business owners with large debt loads and extensive assets may choose to consult with a local bankruptcy attorney about filing for Chapter 11 bankruptcy relief.  Chapter 11 is not your typical bankruptcy and the costs are considerably higher.  However, such businesses remain open, undergo some degree of restructuring, and create an acceptable repayment plan with their creditors.  Chapter 11 bankruptcies are considered more of a “niche market” meaning that your bankruptcy lawyer should be uniquely experienced in handling Chapter 11 bankruptcy matters. Chapter 11 bankruptcy may be appropriate for medium sized business with multiple locations. In 2020 we have already seen a number of Chapter 11 bankruptcy filings in the news, including these large business with local store fronts:  JC Penney, Pier One, and Art Van Furniture.

What if you are a small business owner who has personally guaranteed some or all of the business debts?  This is more common than you may think.  Banks aren’t always eager to provide large business loans without some sort of secondary obligation or other collateral.  If you personally signed for business debts, then both the company and the individual each have their own respective obligations and pathways forward.  For the individual, either Chapter 7 or Chapter 13 may provide the best relief.  Chapter 7 bankruptcy is called “liquidation” and your bankruptcy attorney will inquire about all relevant personal and business assets to determine whether or not there is inherent liquidation risk.  Chapter 13 bankruptcy allows an individual to repay many debts over a 3-5 year period, while offering protection of one’s personal assets, such as a home or car.   Have an in depth consultation with your local bankruptcy attorney and be sure to discuss factors such as your assets, liabilities, secured creditors, and whether your small business is a corporation, LLC, sole-proprietorship, or some other form of business.

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