How can bankruptcy help struggling restaurants?

This past year has not been easy on anyone in the business world. In particular, restaurants are facing some of the largest financial challenges, with difficulty paying rent, bills or suppliers, all while continuing to serve customers with a reduction in profits.

When struggling with overwhelming debt, many restaurant owners fear that seeking debt relief through bankruptcy will mean the end of the line for their business. However, filing bankruptcy can help business owners manage their debt without losing control of their business.

Liquidation is not the only option

It is common – even today – to hear or see stories in the news about how restaurants had to close their doors after filing bankruptcy. While filing Chapter 7 bankruptcy often does lead restaurant owners to liquidate their assets and close their business, there are other options aside from Chapter 7 that can help.

However, businesses can also file Chapter 11 bankruptcy or reorganization bankruptcy. This option allows businesses to reorganize their business structure and continue to operate. Like Chapter 13, businesses follow a repayment plan to manage their debt.

Why do restaurant owners still avoid bankruptcy?

Business owners are often still wary of Chapter 11 bankruptcy. Even though this process places the automatic stay on debt collection efforts and assists restaurant owners in seeking debt relief, many remain hesitant because:

  • Several factors determine which chapter business owners are eligible to file
  • It is often a long, complex process

Bankruptcy can be a complicated procedure, especially for New Mexico business owners who want to stay in business. However, this recently became easier for many business owners.

New changes make debt relief even more accessible

Just in 2019, federal lawmakers passed the Small Business Reorganization Act. More recently, lawmakers amended Subchapter V of the Chapter 11 bankruptcy code under the Coronavirus Aid, Relief, and Economic Security Act (CARES) to:

  1. Make it easier – both financial and process-wise – for small businesses to file Chapter 11 bankruptcy
  2. Allow businesses to create and follow reorganization plans while letting owners maintain control of their business

This law could help make the process of obtaining debt relief more efficient for restaurant owners as they manage the future of their career and their finances. Even so, it is still critical to confer with a bankruptcy attorney and learn more about all of the debt relief options open to you.