Bankruptcy filings among small businesses are rising, and more owners will face a critical juncture between epic failure and successful rebound positioning.
Subchapter V bankruptcy filings, which most small businesses now use, are running above last year's level, according to the American Bankruptcy Institute.
It's become easier in recent years to use bankruptcy as a business owner under financial duress. The Small Business Reorganization Act of 2019 introduced Subchapter V to Chapter 11 of the U.S. Bankruptcy Code. The intention was to offer a simpler and more cost-effective way for small companies to reorganize their debts and get back on their feet. Since then, it has become an increasingly popular tool for troubled small businesses.
"You don't want your business bankruptcy to force a personal bankruptcy because that will ruin you for a long time," Mohs said.Bruce Levitt, a partner with law firm Levitt & Slafkes, has gotten calls the day before or after something happens in court, like a landlord-tenant action. Even if a bankruptcy is filed after that, it might not stop an eviction, he said.
Subchapter V is quicker and less expensive than a traditional Chapter 11, but there are still costs involved, said Megan Murray, a founding shareholder of Underwood Murray, a law firm that focuses on commercial bankruptcy. It's not like you throw your business into bankruptcy and avoid legal and administrative fees."You can't just walk away," she said.
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