The COVID-19 pandemic is an unprecedented economic event. In addition to the cost in lives and sickness, the lockdown regulations and social distancing policies have left many businesses without revenue. It’s quite difficult for a restaurant to pay its rent and other bills when it can’t serve any customers. In addition, the uncertainty around the disease and the wait for a vaccine means business owners do not have any clear idea of when they will be able to start making money again. That makes it very difficult to predict how long the business can afford to stay open. Companies from multinational corporate giants to corner stores are all facing the prospect that they might not be able to survive the economic fallout from the virus.
One potential solution is bankruptcy proceedings. Bankruptcy generally sounds like failure– a business that has run out of money and is shutting down. But in reality, bankruptcy is a process designed to let companies try to undo mistakes or overcome difficult conditions under a structured legal process. Businesses in bankruptcy get access to special loans from private lenders to help them get back on their feet, although they usually need to agree to conditions like selling off some of their assets. A business often comes out of the other side of bankruptcy smaller than before, but still quite able to make a profit and continue on.
Normally, bankruptcy is meant for companies that are dealing with problems like too much debt for them to handle or expanding faster than they can afford. COVID-19 is a different kind of problem. It creates an environment where even normally healthy companies have no money coming in and no way to pay their workers and bills. Some bankruptcy judges have responded to the pandemic by allowing businesses to enter bankruptcy under what they call a mothball motion. A company in this kind of bankruptcy is hibernating– it is allowed to stop paying rent and some other bills while still paying workers. That way it can hold onto its staff and be ready to start functioning as soon as the economy reopens. Businesses in bankruptcy under a mothball motion can try to wait out the pandemic because they, their landlords, and the court know that under normal circumstances the company would be doing much better.
A business can’t hibernate forever, and neither can the economy. Bankruptcy can help stave off the effects of lockdowns, but businesses will only be able to return to full capacity once the public health crisis has been solved. Fundamentally, companies will not be able to stop paying rent indefinitely, and they won’t be able to keep paying their workers without revenue, either. On top of that, due to how much consumers are struggling to deal with the COVID-19 epidemic themselves, it’s clear that things are not returning to normal anytime soon. In the meantime, bankruptcy will become an important tool for businesses to manage the crisis and ensure that they come out on the other side healthy and ready to operate.
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The Law Office of Barbara B. Braziel helps people get out of debt. We offer free consultations to people of Savannah, GA and the surrounding areas, including Richmond Hill, Hinesville, Pooler, Port Wentworth, Tybee Island, Clyo, Ellabel, Midway, Ludowici, Springfield, Pembroke, Brooklet, and Garden City.
We are a debt relief agency. We help people file for bankruptcy relief under the U.S. Bankruptcy Code.
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