Filing for Bankruptcy During a Pandemic: Which Type is Right for My Small Business?

As COVID-19 cases continue to skyrocket, businesses’ savings are plummeting. More than six million people have filed for unemployment to date, and big-name industries like petroleum miners and internet providers are beginning to file for bankruptcy. While some small businesses are being offered special loans and deals, it’s safe to say that COVID-19 is putting many small businesses throughout Erie, Pennsylvania into an inevitable halt, forcing many others to consider business bankruptcy or taking out even more loans.

According to the American Bankruptcy Institute, commercial bankruptcy filings in April 2020 in Pennsylvania totaled 5,585. Marsh Law provides relief to many locally-owned small businesses here in Erie, Pennsylvania. While many small business owners are trying to decide what is best right now, oftentimes, they forget to think about the future of the company and how to make choices that result in creating something sustainable.

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The Financial Hardships Small Businesses in Erie, PA Face During a Pandemic

Small business owners in Erie, PA who are forced to close their shops, restaurants, retail stores, and more can face unpaid bills such as payroll, accounts payable, and fixed debt. These same business owners will also have to face having to lay off their employees. Depending on how they’ve funded their businesses, many are having to spend their time on the phone working with loan agents, vendors, insurance companies, and regular clients to find out if or when they could possibly reopen.

A recent Goldman Sachs survey shows a variety of options that many business owners would like to see made available by the government, such as grants, a payroll tax cut, reimbursement for paid sick leave, delay of tax payments, delay of mortgage payments without penalty, reduced-rate interest loans, government-backed quick loan programs, and enhanced unemployment insurance. 51% of those who were surveyed reported they will only be able to stay open for another three months or less; however, a “file for bankruptcy” option was notably absent.

Should I Take out a Loan or File for Bankruptcy?

Some small business owners believe that taking out another loan is better than filing for bankruptcy. The U.S. Small Business Administration is providing SBA-associated grants and federal disaster loans for businesses, private nonprofits, homeowners, and renters. However, some business owners no longer have the personal resources to draw on and may not receive federal stimulus funding, while other small business owners are trying to avoid taking out any additional loans because they don’t want to incur more debt. Every business owner’s situation is different, but the general rule is: If you can’t identify enough future revenue to pay off the debt, borrowing may make matters worse.

Filing for Bankruptcy | Chapter 13, Chapter 7 & Chapter 11 Bankruptcy

Troublesome statistics aside, the U.S. government is taking some steps to help businesses survive. However, obtaining additional grants and loans can be time-consuming and extremely competitive. If you’re past the point of grants and loans, small business owners should consider filing for bankruptcy. The three types of bankruptcy most often used for businesses are:

  1. Chapter 13 Bankruptcy
  2. Chapter 7 Bankruptcy
  3. Chapter 11 Bankruptcy

Obviously, bankruptcy is a final resort for business owners, and most won’t do it unless there is no other choice. However, with so many small business owners finding themselves in the same boat due to COVID-19’s economic effects, mindsets need to be altered, stigmas erased, and actions taken order to create a sustainable future. All small businesses should be prepared to file for bankruptcy should it become necessary. Marsh Law is here to assist small business owners in Erie, PA by providing knowledge about filing for bankruptcy while guiding clients throughout the process.

File Chapter 11 Bankruptcy with Marsh Law to Provide Creditors with a Sustainable Reorganization Plan

Chapter 13 or Chapter 11 bankruptcy keeps your doors open, protects you from creditors, and allows you to keep more property than Chapter 7 bankruptcy. However, Chapter 11 business bankruptcy is usually the better option if your business is structured as a partnership, corporation, or sole proprietorship whose income is too high for Chapter 13.  A huge advantage of filing for Chapter 11 Bankruptcy is the fact that the business stays open while creditors are presented with a reorganization plan and get to vote on that plan. If the court approves the plan, the business can pay creditors over time, terminate contracts and leases, discharge some of its debts, and recover some of its assets.

Talk to the bankruptcy attorneys at Marsh Law before deciding to file for business bankruptcy. There are details specific to your circumstances that will necessitate careful review and planning, as not all bankruptcy cases are simple or straight to the point.

Questions? Talk to an experienced Chapter 11 Bankruptcy Attorney Today!

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For Decades The Marsh Law Firm Has Provided Effective, Experienced & Price-Competitive Attorneys for Bankruptcies in Erie County & Northwest Pennsylvania

Marsh Law Firm ensures each and every one of their small business clients dealing with financial issues is provided the necessary information and reassurance. Our bankruptcy attorneys work with locally owned businesses to seek the most cost-effective and creative solutions for debtors dealing with major liabilities, business downturns, or cash-flow problems. By following the basics of business bankruptcy, we lay out all the available options for each of our clients, walk them through the process, and provide our recommendations based on over 35 years of experience. At Marsh Law, we believe it is never too late to equip yourself with new knowledge and come up with a plan for your small business while the economy recovers from the effects of the current public health crisis.