Bankruptcy Is Tough and Costly And Might Be Your Only Option

Nearly three months in, it's apparent the novel coronavirus will leave many victims in its wake — including thousands of small companies, despite decisions in many states to open up for business. Health officials warn that these efforts will lead to a surge in new illnesses that in fact will only prolong the shutdown, and polls show that most Americans oppose the abrupt return to normal. In the end, it is consumer sentiment, as much as government decrees, that will restart the economy. Acting and thinking strategically—cutting cash payments and also gaming out future expenses and options for generating the sales to cover them—will certainly help you beat the odds, but even that might not be enough.

So it's natural, if regrettable, that you might be thinking about how you'll have to wind down your business if its debts become overwhelming and it becomes insolvent. Many people imagine bankruptcy is the ultimate end for such a company, but bankruptcy is a legal status that an insolvent company or its creditors can voluntarily choose to pursue. In fact, bankruptcy is a process mediated by a federal court, to resolve a debtor's obligations to creditors, either by reorganizing and shedding some debt, or by selling assets to pay back creditors. Bankruptcy generally makes resolving those obligations easier, and offers some protections for debtors who would otherwise find themselves at the mercy of those they owe. For example, as soon as a company files for bankruptcy, the court issues an automatic stay blocking most creditors from attempting to collect their debts.