Although bankruptcy filings may seem increasingly alarming, they do not necessitate an end for a business or an individual.
As the novel coronavirus continues to spread around the world, an increasing number of firms and individuals have filed for bankruptcy (Seen in image below via Bloomberg). Firms which have filed for bankruptcy range from Dean & DeLuca, an NYC food retailer, to renowned department store Neiman Marcus (NBC News). Most recently, franchise operator NPC, which owns Wendy’s and Pizza Hut has also filed for bankruptcy (Bloomberg). Although this news may seem extremely alarming, it should be noted that bankruptcy does not necessarily mean a business/individual is closing down or liquidating everything; this article will cover various types of bankruptcy and what it means for a business or individual.
A Chapter 11 Bankruptcy has been filed by numerous firms recently, including clothing retailer, J. Crew, as they struggle to keep their businesses afloat due to the closures associated with the pandemic. A chapter 11 bankruptcy can be viewed as a reorganization of debt or asset for the business; it is generally a complex and expensive process utilized by large corporations to start afresh in terms of debt (Investopedia). The bankruptcy proceedings include a plan for paying back creditors that must be approved by a court. While the court has certain controls over the business and liquidation of assets, the business is generally allowed to stay open. (Investopedia).
While a Chapter 11 bankruptcy is only generally used for businesses, individuals facing financial hardship may utilize a Chapter 7 or 13 bankruptcy proceeding. A Chapter 13 bankruptcy is similar to Chapter 11 filing as it involves reorganization of debt, whereby an individual may be able to keep their assets, including property, in the long-run. However, the individual must make monthly payments for a duration ranging from three to five years and follow an established debt repayment plan enforced by a court. (Experian)
A Chapter 7 bankruptcy proceeding is what we frequently associate with bankruptcy in popular culture and involves the liquidation of assets, including property, in a short-term time period – generally a period of three to five months. This proceeding is generally filed if there are no means of repayment; those filing must pass the chapter 7 means test whereby disposable income is below a certain threshold number. This article may provide use as we navigate through a pandemic as we are able to comprehend that a bankruptcy filing does not necessarily mean a retailer or individual will have to liquidate completely.