Stephen Behrends Law Office Blog | Eugene, OR

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Stephen Behrends Law Office | Bankruptcy | Eugene, OR


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This blog is for people who are thinking that they might have to file bankruptcy. I have been helping people work through their financial problems for so many years that I know the concerns that come up again and again. I want to provide practical information that you can use right now in helping decide how to take on these complicated issues.

By Stephen Behrends, May 3 2020 09:48PM

A recent New York Times article discusses this important question:

Experts and small business advocacy groups worry that tens of thousands of small business will be lost in the coming years due to the Coronavirus crisis. Many of them will consider and may be saved by filing bankruptcy. But there are the big questions: When do they need to start to think about it, which chapter of bankruptcy would be best and would the owners as well as the business have to file.

Everyone agrees that a clear sign that the company should consider filing bankruptcy or shutting the doors is an inability to pay the payroll taxes to the state or the IRS. The owners will be personally liable if the payroll taxes are not paid and it also is a definite indication that the business is not generating enough cash flow to cover the ongoing expenses.

Chapter 7 can be filed when it is time to give up or when the owners have no non-exempt assets. But a Chapter 13 or Chapter 11 is needed if there are non-exempt assets to be protected or the business can be reorganized.

Chapter 11 has recently been improved with the addition of Sub-Chapter V (5), which streamlines the Chapter 11 process and makes it easier for the Bankruptcy Court to approve a plan which is not supported by the creditors. Corporations, LLC, partnerships and joint ventures can only reorganize through Chapter 11, so the addition of the sub-chapter 5 is a big deal. Before it came along, there was only regular Chapter 11, which is big, clumsy and expensive, or the sale of the assets of a small corporation owned by an individual or couple, to the owners who then file Ch 13.

If the owners of the company have personally guaranteed the buisness debt, they may end up having to file bankruptcy, whether or not the company has to file. A bankruptcy for the company doesn’t automatically protect the owners. And a bankruptcy isn’t automatically required just because the business is going to be shut down. Sometimes, it is possible to reorganize the business in bankruptcy so that the debt that is personally guaranteed or the payroll taxes for which the owners will be personally liable can be paid.

A business reorganization is essentially a new business and so a new business plan and budget are crucial. Can the reorganized business generate the income needed to survive, even if its debt is restructured? If not, a Chapter 7 bankruptcy may be considered.

An experienced bankruptcy attorney can help sort out all of the questions about whether to file, who should consider filing and which chapter would work best.

By Stephen Behrends, Mar 18 2020 11:25PM

Many people are worried right now because their business or job is threatened. Large numbers of people are already unemployed because of the economic fallout from the Covid-19 crisis. Restaurants, bars, college and professional sports have been shut down and the travel and hospitality industry is grinding to a halt.

Will everyone end up having to file bankruptcy as a result?

The situation is similar to 2008 & 2009 except that what happened over 2 or more years then now took only two weeks! Many people had to file bankruptcy as a result of the crash that started in those years. Most were able to rebuild their credit and their lives, buy homes, start families, build businesses or retire with dignity. So bankruptcy is an important safety net.

But there are some signs that things might be different now. Even though the country is arguably more politically divided than ever, maybe there is going to be bi-partisan support for a stimulus package this time around. There is a chance that people learned from the mistakes that were made the last time. Perhaps it is partly because it is clear that this crisis was caused by the virus and the slow response to it.

So maybe we don’t have the same factors that led some to say in 2008, for example, that the banks and the auto industry should be left to face the free market consequences of their decisions. It doesn’t seems like there is as much talk about how we should be more worried about the effect of a stimulus package on the deficit than the consequences of leaving people to fend for themselves in these unprecedented times.

Also, maybe the banks and mortgage companies learned from the last time that they need to work with people, not leave them behind. It doesn’t do them any good to have people losing their homes and being forced to file bankruptcy. We certainly saw a lot of people get loan modifications as the housing crisis in 2008 and 2009 continued for years afterwards.

So, what are your options? What can you do if you have lost your job or if your small business is facing an indefinite shut down severe restrictions on its operations?

First, I believe that communication is a key strategy. Call your landlord or your mortgage company. See what they can do to allow payment skips or delays. Call the lender on your car loan and your credit card companies. Ask about options for payment skips or reduced payments.

Communication is especially important or even crucial for small businesses. If you are a small business owner and have a bank loan or line of credit, call the bank and talk to them about your options. Call your landlord and let them know how the shutdown is going to affect your ability to pay your lease.

Follow up on options right away. If you are eligible for unemployment compensation, apply right away. As hard as it will be to do it, check into eligibility for food stamps or other benefits. It might be a while before things return to normal. The Oregon Employment Department has the following website that has some information about unemployment compensation benefits

Also, this is a good time to follow the news so you can find out about loans, bailout and stimulus packages that will be coming out of Washington DC. The SBA may get money to make loans for small business to survive, with a streamlined and simplified application process. The following website has information on disaster loan assistance and will probably be the first place to have information about emergency relief from the SBA

You can always call your representative in Congress or Senator’s local office. They all try hard to help their constituents deal with federal agencies and probably can get answers about what assistance is or may become available for your small business.

Remember that you are not alone. Millions of Americans are facing the economic consequences of the health crisis and ensuing results across the country. Solutions are going to have to be available to avoid widespread disaster and the country’s leaders are working on them right now.

Don’t worry about having to do anything like filing bankruptcy right away, unless you are already, for example, getting garnished or facing a foreclosure. Unless you are already dealing with foreclosure, lawsuits, judgments or garnishments, it is likely that there will be time to figure out your alternatives and wait to see if you really are going to have to file bankruptcy as a result of this crisis. Bankruptcy is a last resort and you probably have time to wait to see if maybe there will be resources or options available to help you avoid it.

Of course, feel free to call or email with your questions. Sometimes, just knowing that the bankruptcy safety net is in place below you makes it easier to survive day to day, even if you never need it.

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Stephen Behrends