In the aftermath of the devastation created by Hurricane Harvey, additional financial concerns are being faced by those residing or doing business in the affected areas. Many are evaluating their options for recovery from their financial losses, which includes a business or individual bankruptcy. There are many common concerns that worry most clients when facing insolvency situations and whether to file bankruptcy.
Corporate Debtors:
For corporate clients, maintaining business continuity during the recovery process is a must. So, when it comes to corporate debtors, their primary concerns and our responses, which help them understand the advantages of how the process will benefit their business, eliminate certain struggles, and potentially provide longevity to what may seem to be a losing battle are:
Will our customers will leave? A Chapter 11 reorganization allows operation of your “business as usual” and allows management to focus energies on customer growth, needs and satisfaction rather than collection efforts of large debt holders that might be stifling the organization, creating a large distraction and dragging down sales efforts.
Will our vendors cut us off? Chapter 11 prevents pre-filing creditors from threatening collection of their pre-filing debts or else refuse to provide new goods or services; however, chapter 11 business debtors are required to stay current with post-filing vendors, which can provide comfort to important go-forward creditors.
Will Employees quit? Chapter 11 bankruptcy allows the business to pay its employees just as it did pre-filing and treats qualifying employee pre-filing claims as priorities to ensure they are paid in full and in front of the payment line.
We wouldn’t know how to restructure. Chapter 11 provides breathing room from all pre-filing lawsuits, landlord, lender and vendor demands, and relief from performance under onerous contracts to allow the business to develop a viable reorganization strategy with the help of qualified bankruptcy counsel and time to work through the recovery process and develop a healthy business plan for the future.
Individual Debtors:
The concerns for individual debtors relate to job and family. A qualifying individual debtor may file a Chapter 11 reorganization, keeping his or her non-exempt property and paying creditors over time under a Court-approved plan, or a Chapter 7 liquidation of all non-exempt property and receive a discharge from its creditors. The typical concerns of an individual debtor are:
Everyone will know and I’ll lose my job. Though all bankruptcy filings are public, friends, family, and neighbors usually don’t go rooting through bankruptcy filings and may never know, nor would they be listed as a notice party. Employers cannot terminate an employee solely on the grounds he or she filed bankruptcy.
It’ll hurt my credit and I’ll never qualify for a loan again. While a bankruptcy will show up on an individual’s credit report, the credit score is likely already poor, and eventually will improve the credit score over time as maxed out credit lines and late payments are no longer being reported – credit reporting agencies view a bankruptcy filing as a more “responsible” way of dealing with debt issues than reoccurring late payments and/or defaulted obligations. Numerous late or missed payments, foreclosures, lawsuits, and judgments hurt your credit, and perhaps more so than a bankruptcy. Bankruptcy is a cheaper and quicker solution than being mired in months (or years) in cash problems with an already damaged credit score.
I don’t want to lose my house and my car. Bankruptcy provides certain options for keeping your exempt property, which, in Texas, includes your home, retirement savings, up to $100,000 in personal property and car equity for heads of households.
I can’t afford it. Bankruptcy can be affordable and can often cost thousands less than not filing and instead receiving numerous distracting collection notices, paying high interest rates and old debts that can otherwise be discharged in a bankruptcy proceeding.
I don’t want to stiff my creditors. Depending on available non-exempt assets, bankruptcies can pay decent dividends to creditors, so that each receives an equal distribution of what is available. Bankruptcy cases are monitored by experienced trustees and professionals and your creditor’s rights are protected to the extent of the Bankruptcy Code. It’s a fair process for creditors and a fresh start for the debtor.
Whether facing financial struggles based on economic downturn of your business, Hurricane Harvey, tragedy, illness or other challenges that present themselves, Curtis | Castillo is here to assist with the process, and help you plan for the future, and thrive.
Stephanie Curtis has been practicing law in the area of financial restructuring for over 25 years.
If you have legal questions regarding your individual or business restructuring or recovery efforts, please contact [email protected] to be connected with a legal bankruptcy professional.
