The novel coronavirus continues to spread across the United States. Although shutdowns are not in effect nationwide, many companies are seeing a drop in regular business. Some of these companies recently filed for Chapter 11 bankruptcy. Although individuals can file under this Chapter, Chapter 11 cases are often called business bankruptcies.
CEC Entertainment, the parent company of Chuck E. Cheese, recently filed for Chapter 11 bankruptcy. The company also owns Peter Piper Pizza, a separate pizza chain with locations on the West Coast and across the Southwest United States.
Other well-known companies are feeling significant financial pressure due to the pandemic. GNC, a nationwide chain that sells health products and nutritional supplements, is also filing for Chapter 11 bankruptcy. The company said it plans to close more than 1,200 of its stores.
Other large companies sought bankruptcy protection over the past several months. JCPenney, 24-Hour Fitness, Hertz, Gold’s Gym, J. Crew and Neiman Marcus recently sought bankruptcy protection.
Additional bankruptcies are likely to occur in the coming months and years. Some states are seeing exponential growth in the number of coronavirus cases, and consumers are responding to this turn of events with extreme caution.
Even without shutdowns in place, many businesses, especially those with physical locations, are seeing a major decrease in business. A recent article published by Yahoo! Finance suggests there could be a tsunami of retail bankruptcy cases in the coming months.
Can Chapter 11 Help My Business?
- Stopping collection attempts. An automatic stay goes into effect once a company files for Chapter 11 bankruptcy. Creditors cannot seize assets while an automatic stay is in effect. The automatic stay helps businesses protect their employees and cashflow.
- Allowing the business to maintain control. During a Chapter 11 bankruptcy, businesses can maintain control of operations under court supervision.
- Reducing financial obligations. Businesses can reorganize debts under Chapter 11 bankruptcy. Some businesses may renegotiate or reject cumbersome lease agreements. Chapter 11 bankruptcy may help a struggling business reduce its financial obligations.
- Establishes a payment plan. Chapter 11 bankruptcy allows a business to establish a payment plan with creditors that may last up to ten years.
- Small businesses can file as well. There are new rules for Chapter 11 cases involving small businesses. Businesses with up to $7.5 million in non-contingent, secured and unsecured debt will qualify for Subchapter V under the Bankruptcy Code until March 26, 2021.
There is a common misconception in our society that bankruptcy means a business is permanently closing its doors. However, many businesses have survived Chapter 11 bankruptcy. Bankruptcy is not for businesses with nothing to lose; it is for businesses who have assets and personnel they want to protect.
Will Coronavirus Cause More Consumer Bankruptcies?
Many struggling businesses initiated layoffs when the coronavirus shutdowns first began. As with GNC and 24-Hour Fitness, jobs disappear when businesses shutter physical locations and/or suffer a steep drop in regular business.
With job losses increasing across the United States, consumer bankruptcy cases are also likely to increase. There are protections in place for some consumers. For instance, some homeowners can still take advantage of a moratorium on evictions and foreclosures. Some of these protections are set to end in the near future. Unemployment benefits established under the CARES Act end on July 31, or sooner, depending on where you live. People who qualified for these benefits received up to an extra $600 a month in unemployment benefits.
Without additional help from their respective state governments or the federal government, consumers and businesses are more likely to seek protection from creditors by filing for bankruptcy.
Consumers can benefit by filing for bankruptcy under the right circumstances. Much like with a Chapter 11 case, an automatic stay goes into effect when a person files for Chapter 7 bankruptcy or Chapter 13 bankruptcy. We recently published a large guide that goes into much more detail on how consumers and businesses can benefit from bankruptcy.
Our Kansas City Bankruptcy Law Firm Helps With Business Bankruptcies
The Sader Law Firm can help struggling businesses and consumers find options for debt relief. If you want to discuss how your business could benefit from Chapter 11 bankruptcy, or if you are an individual struggling with debt, then we encourage you to call us. You can reach our business bankruptcy attorneys by dialing (816) 281-6349 or by using the contact form on our site.