PHOENIX — It's been a tough year for many small businesses. Some are hanging on by a thread with business severely impacted due to COVID-19.
Surprisingly, the number of bankruptcy filings has remained steady and even seen a small decline this year, but financial experts advise, this could just be the calm before the storm.
"Maybe the best way to say it is there is a tidal wave coming. The question is, are you going to be in front of that tidal wave or crushed by the tidal wave, because it is coming," said Lamar Hawkins from Guidant Law Firm.
Hawkins specializes in bankruptcy cases. He also serves as the chairman of the Arizona Board of Legal Specialization's Bankruptcy Law Advisory Commission.
Hawkins said that thanks in part to government loans and mortgage forbearances, many businesses had been able to stay afloat, but those loans are soon coming due. The forbearance programs that allowed you to delay making your payments will be winding down.
"There are also a lot of defaults on loans out there but none of the banks are wanting to be the first one to tag lenders with foreclosure sales," said Hawkins. "No bank wants to be seen as the bad guy first."
For businesses already struggling before the pandemic, COVID-19 may have pushed them over the edge.
One of them was Decompression Pros, a company that sells medical equipment. The company founded by Brian Self had gained international repute and was doing business in several countries, but the pandemic led to a big loss in sales revenues.
The business relies on travel to set up medical equipment and provide support to its clients, which also took a big hit during the pandemic.
"It's really difficult. I fought it for as long as I possibly could," said Self, saying debts were piling up and he had to look toward his last resort, bankruptcy.
"How stressed out was I? On a scale of one to 10, an 11," said Self.
With Hawkins as his attorney, Self was able to take advantage of a new law signed into effect in the summer of 2019 called Subchapter 5, or the Small Business Reorganization Act.
Hawkins said the law has been a 'life raft' for small businesses trying to stay afloat. It cut down the length of time and costs associated with filing a traditional Chapter 11 bankruptcy.
"It is a method to repay your creditors over time rather than give up your assets immediately," said Hawkins.
He added that if the debtor's plan was 'consensual' with the creditors, the debtors could achieve their discharge on the same date as the court confirmed the plan.
This confirmation could occur within five months of the bankruptcy filing, compared to the three- to five-year delay in a Chapter 13 or similar extensive delays in a Chapter 11 filing. This could help business owners and individuals get back on their feet much faster.
Filing for bankruptcy is the last resort for business owners and individuals.
Hawkins said a good attorney would always work to ensure clients had explored all other options first.
"You want to talk emotion? It is not uncommon for people to cry in my office when we meet for the first time," said Hawkins.
For those businesses and individuals who are struggling, he advised they start looking into all of their options. This included talking to landlords and lenders to see if they would work with you and let you make the payments over time.
He also advised saving as much cash as you could and prioritizing which expenses had to be paid up versus the "frills." At the end of the day, Hawkins said there is no longer any stigma associated with filing for bankruptcy, and there were ways to do it while still taking care of your financial obligations and saving your business, home, and car.
"You don't have to lose all of your assets. There is a light at the end of this tunnel. You can make it through this process," he added.
Before filing for bankruptcy in Arizona, you must obtain credit counseling.
Here is more information on filing for bankruptcy in Arizona if you find yourself in that situation: Before You File | District of Arizona | United States Bankruptcy Court (uscourts.gov)