The Bankruptcy Question for Small Businesses Affected by the COVID-19 Shutdown
Do you have a small business that is severely impacted by the COVID-19 Shelter In Place orders?
Have your PPP, EIDL or other SBA loans been held up or denied?
What will happen to your business when the stay on evictions is lifted?
Should you be using personal funds or retirement funds to support your business?
Are your negotiations with your landlord not going well?
If you are pondering these questions for your business you might consider whether a reorganization bankruptcy might help. Why?
Right now and for the short-term future, California has implemented a “no eviction” emergency order by way of an emergency rule of court that prohibits the issuances of summons for eviction of all types, residential or commercial. Other laws make it unlawful for landlords to begin a residential eviction during an emergency (Cal. Penal Code § 396(f)).
This safe harbor for tenants will not last forever. It can’t. Landlords continue to be pressured by their lenders to pay mortgages while at the same time tenants are not paying rent. Large law firms are offering to throw matters into litigation, at your cost.
This safe harbor for tenants will not last forever. It can’t. Landlords continue to be pressured by their lenders to pay mortgages while at the same time tenants are not paying rent. Large law firms are offering to throw matters into litigation, at your cost. There has been talk recently, of raising the stay on evictions. When – not if – that happens, it is likely there will be an onslaught of eviction lawsuits, which under California law can be brought to conclusion in as little as two weeks to several months. Commercial tenants who might consider bankruptcy “down the road” will have missed a precious opportunity to plan ahead of time.
In Bankruptcy, Timing is Everything
The truth is that some businesses should be contemplating bankruptcy now. Bankruptcy planning, like tax planning, should occur in the months leading up to the filing, not on the eve of filing. A reorganization bankruptcy is a complex mechanism that comes with powerful tools to help the debtor in possession, but it is not something that should be thrown together last minute. With proper planning, a commercial enterprise might even avoid filing bankruptcy, but that sometimes depends on whether creditors view the potential bankruptcy as a credible threat. And frankly, a commercial tenant ought to consider whether it might be advantageous to be in front of a bankruptcy court rather than a state court arguing for excuse from performance on a lease or contract. State courts are often faced with a variety of cases including criminal and family disputes, whereas federal bankruptcy judges are experts in financial matters and how to get a reorganization accomplished successfully.
Law Offices of Brian Irion is a debt relief agency that helps businesses and people under the Bankruptcy Code. We highly recommend – and will require all possible debtors who are our clients to review – among other things – the disclosures required by 11 USC § 342, ,11 USC § 527, and 11 USC § 528.
