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Bankruptcy in the Age of COVID-19

While the mechanisms in bankruptcy have been available for many years, the extraordinary potential legal complications resulting from the Covid-19 pandemic amplify the relevance of these provisions.  This pandemic has brought about issues, defenses and other consequences which are likely to be novel and requiring of the expertise of experienced litigation counsel – whether in representing the interests of the debtor or of the creditor. In the coming months, Americans will be faced with complex challenges, likely involving the overlap of a number of different legal issues. 

It is highly anticipated that Covid-19 will play a determinative role in the resolution of contract disputes between a business debtor or a creditor in a bankruptcy/insolvency related legal matter and justify a business's failure to make timely payments or meet its financial obligations.  The crossover of legal issues are extensive, and courts are anticipating a massive influx of bankruptcy proceedings in the coming months, which will undoubtedly cross over into legal areas ranging from real estate, trust and estates, matrimonial and commercial disputes.

In short, never before has is it been more necessary that businesses and business creditors have experienced litigation counsel to advise them and represent their interests – now that the Covid-19 pandemic has disrupted the normal flow of America's business transactions. 


Bankruptcy is a legal proceeding carried out to allow individuals or businesses freedom from their debts, while simultaneously providing creditors an opportunity for repayment.


The short answer to that is "no."  There are different types of bankruptcy that apply to different type of parties with varying degrees of severity.

In a "Chapter 11" reorganization, the business owner remains in control of the business and maintains ownership over the property as the “debtor-in-possession.”  The business owner actually continues operating his business while the business, through federal or state court procedures, is able to reach reasonable agreement with creditors as to the businesses’ debts– allowing the business to survive.

“Chapter 7” liquidation, on the other hand, is exercised in cases where the business has no viability.   Upon filing in federal court, a business filing for Chapter 7 will surrender all property to the court and a court-appointed "trustee" will orderly work toward accomplishing the sale and disposition of the business assets so as to satisfy the businesses’ outstanding debts to existing creditors.  Creditors range from banks with "secured" mortgages, or "unsecured" creditors who had provided the day-to-day credit for usual and regular purchases as the business operated in the regular course.


Yes, Individuals can also file for bankruptcy.  Generally, "Chapter 13" bankruptcy is accessible to individuals with a regular income and unsecured debt of less than $250,000 and secured debt of $750,000 or less.[1]  Much like Chapter 11, the debtor (in this case the individual) remains in possession of the property, but a court-appointed trustee works with the debtor individual and creditors to orderly resolve indebtedness so that the debtor individual might avoid losing a home, vehicles, or other personal possessions.

Bankruptcy in the Age of COVID-19: News
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