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Suddenly, bankruptcy is on the mind of business owners

By John Seelmeyer
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Business owners in the Reno area aren’t rushing to file for bankruptcy protection, but they’re beginning to ask their lawyers about the possibilities.

That’s a good thing, the lawyers say. Too often in the past, business owners have waited until they’ve watched all their assets — personal, sometimes, along with the business— dwindle away before they seek the shelter of bankruptcy.

Plus, it reduces the worry.

“The unknown is what is so scary for a lot of people,” says Tricia Darby, who practices bankruptcy law in Reno with her husband, Kevin.  “We’re visiting today with smart people who want to understand what their options might be.”

Timothy Lukas, who specializes in bankruptcy as a partner at the law firm of Holland & Hart in Reno, says unknowns abound for business owners as a result of the freeze-in-place orders by state and local officials six weeks ago.

“There are still a lot of unknowns about when and how our local economy will emerge from the current financial crisis,” says Lukas. “The abrupt, system-wide disruption to the economy means business owners and lenders need to work out the problems they’re facing.”

The federal stimulus packages designed to help business weather the COVID-19 storm present even more issues to sort through.

“The current stimulus bills prohibit or limit relief if a business chooses to file for bankruptcy. Right now, all of the obligations and commitments for business owners remain in place,” Lukas says.

On the other hand, Darby says Congress opened the doors for more small businesses that are floundering as a result of the pandemic to reorganize under the protection of Chapter 11 bankruptcy protection. Some filing deadlines were extended.

But Lukas cautions that those measures are valid only for a year.

“If one waits too long to file for bankruptcy, it can be a disaster,” he says, recommending that business owners and their attorneys understand today what a bankruptcy filing could accomplish — or not — if there’s even a chance that a company will go under.

Chapter 11 bankruptcy filings — cases in which businesses try to regroup while they get their feet back underneath themselves — were declining in the region before the pandemic-related shutdowns. Last year saw 14 filings of Chapter 11 cases in U.S. Bankruptcy Court in Reno. That compared with 26 a year earlier.

Chapter 7 cases — the ones in which a judge oversees the liquidation of a business — totaled 566 last year. A year earlier, 1,133 of those cases were filed in the bankruptcy court in Reno.

Support This Is Reno’s COVID-19 news coverage

We are reporting daily on how the coronavirus is impacting the Reno area. This coverage is outside of our paywall, provided free of charge. Please help us continue by becoming a subscriber or contributing a tax-deductible donation to our COVID-19 news fund. Any amount is appreciated.

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