Bankruptcy: Relief for the ‘Honest but Unfortunate Debtor’

May 10, 2020

J Crew. The XFL. Neiman Marcus, Hertz, and Dave & Busters are reportedly next. What do all these companies have in common? They were (or may be) forced to seek relief under the United States Bankruptcy Code because of the economic crisis caused by the spread of COVID-19.  And experts predict that this trend will continue, as business bankruptcies are expected to surge in the coming months and years for both large and small businesses.  Accordingly, an accurate understanding of the causes and ramifications of filing for protection under the Bankruptcy Code is necessary, as the process will likely touch our businesses in some fashion in the coming month.

Traditionally, there is a stigma around filing a business bankruptcy.  Many people view it as the death of the business.  In reality, however, this is often not the case.  For many businesses, the filing of a bankruptcy is intended to be a reorganization rather than a liquidation. Indeed, the bankruptcy code provides protections and tools for businesses to restructure its organization and even eliminated some bad debts.  Specifically, the filing of a bankruptcy imposes an automatic stay from collections efforts from creditors.  Further, the Bankruptcy Code provides tools to debtors, such as the ability to break a lease at a less profitable second location and the potential discharge of unsecured creditor claims.  Fittingly, the Small Business Reorganization Act came into effect February 19, 2020, which Congress intended to act as an avenue to revive otherwise viable businesses stuck in a rut.

Ultimately, Bankruptcy is not for failures—it is, in the words of Justice Sutherland, for “the honest but unfortunate debtor.” Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934). These words will certainly ring true in the coming months, as otherwise profitable and honest businesses will be forced to seek relief under the Bankruptcy Code due to unfortunate and unforeseen circumstances.  Fortunately, the experienced bankruptcy attorneys at Chase Bylenga Hulst, PLLC can help guide you along each step of the way.

If you find your business on hard times, don’t wait until its too late. Contact us at 616.608.3061 or  through our websites contact page for a FREE consultation.