Utah Small Businesses Facing Bankruptcy, Pt 3

Blue Bee Bankruptcy is a law firm of local attorneys helping Utah small business owners cure financial distress. We are more than a month into the national pandemic business lockdown, and we’ve been fielding calls by business owners seeking direction. So, we designed this 3-part series to give them tools to assess their situation as they develop strategies for the rest of this year.

Part 1 discusses the viability of your business, the connection between your business liability and personal assets, and restructuring the debt of a viable business to avoid closure.

Part 2 discusses liquidating a failing business where the owner has little or limited personal liability. A bankruptcy may not even be necessary.

In Part 3, the lawyers of Blue Bee Bankruptcy touch on additional considerations when you are legally responsible for the debts of your business.

Economic Stimulus ~ Part Deux

As Americans deal with the extended health and economic threat caused by the novel Coronavirus, a.k.a. COVID-19, attention is rightfully turning to getting the economy moving again. Early on, economists estimated small business would need $1,000,000,000,000 (one trillion dollars) to keep afloat. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act)  earmarked only one-third of that, and the process for distributing those funds, primarily through the Payroll Protection Program, has been fraught with problems.

Many stories are emerging from Round 1 of stimulus funding, like Wells Fargo favoring their best customers by pushing them to the head of the line, or the story of chain restaurants, hoteliers, and publicly traded corporations receiving a disproportionate amount of the available funds. Maybe the most egregious example is Harvard getting $9,000,000, despite the fact that its endowment fund is worth OVER $40 Billion!

As of this writing, the Senate passed an additional $320B for small businesses. The bill will likely pass the House today and get President Trump’s signature soon thereafter. But, will it do much more than delay the inevitable for many? Overall, the economic stimulus for most small businesses is “too little, too late.”

Liquidation with Liability

If you face the prospect of liquidating a business where you have personal liability for business debt, things just got complicated. There are some key questions that can help steer you to the best solution.

Do your business debts account for most of your overall personal debt? 

If so, you can file a Chapter 7 bankruptcy without regard to your income. If your personal debt exceeds your business debt, you must first pass the Means Test to determine eligibility. Whether all circumstances make Chapter 7 the best choice is dependent upon your circumstances, but it is essential to know whether Chapter 7 is even a possibility. This is where the knowledge of an experienced bankruptcy team counts.

Are any of the business debts secured by your home? 

The Small Business Administration often secures its loans with collateral, and that almost always takes the form of a second mortgage on the borrower’s primary residence. Chapter 13, Chapter 11, and the Small Business Reorganization Act (a.k.a. “SBRA” or “Subchapter V”) all supply avenues for removing a security interests in homestead property.

In Chapter 13 and Chapter 11, you can “strip” a completely unsecured second mortgage, and under the SBRA, you can reduce the balance of a second mortgage to the amount of equity existing after the first mortgage.  This can be a game-changer for many business owners primarily concerned about losing their home. [Watch this space as the value of Utah homes begin to slide in the coming months.]

Do you have personal assets that could become property of a bankruptcy estate? 

Preserving as much of your assets as possible should be the paramount concern for your bankruptcy lawyer. If you have assets that significantly exceed Utah’s allowable exemptions, you should avoid Chapter 7 bankruptcy and consider filing Chapter 13, Subchapter V (SBRA), or Chapter 11. These reorganization chapters offer debtors greater opportunities to shrink their financial exposure by scrutinizing creditors’ claims filed in their case. Debtors can reduce or eliminate creditor claims through an objection process, often resulting in a much lower plan payment and a shorter plan period. Our bankruptcy lawyers have often helped our clients complete a plan of reorganization in months rather than years without losing assets and income.

Life After Bankruptcy

For most business owners trying to cure financial distress, the greatest deterrence to bankruptcy is the fear of life after bankruptcy. This fear is justified because a lack of information increases the fear. Once the judge discharges their clients’ debts, the typical bankruptcy lawyer sees his or her job as completed. However, a bankruptcy lawyer is in the best position to supply guidance toward economic recovery.  It is a wonder that hardly any bankruptcy attorneys offer help with credit rebuilding.

To put it bluntly, the difference between good credit and poor credit is everything. Good credit gets you a lower interest on necessary loans or even a better job or home. Rebuilding your credit after bankruptcy is the key to restarting your life and moving on to your next venture. Rebuilding credit is not easy, but it is a lot easier if you have step-by-step instructions.

You are an entrepreneur. You work hard, are self-reliant, have succeeded, and made mistakes. If the current economic malaise has tanked your business, it is time to get relief, regroup, restore, and renew. If you think coupling bankruptcy with credit restoration can help you get back on track to financial independence, we would be happy to consult with you for free.

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