Bankruptcy Law CLE Guides Attorneys on How to Assist Business Owners
September 16, 2021
Businesses have faced incredible challenges during the COVID-19 pandemic, bringing some to a difficult juncture in which they must seriously consider reorganization or liquidation. On Tuesday attendees of the D.C. Bar CLE class “What Business Owners Need to Know About Bankruptcy” got a crash course on the possibilities and pitfalls facing businesses in debt and received important advice about how to navigate this complex area of legal practice.
Eric S. Steiner, managing member of the Steiner Law Group, LLC, gave an overview of the U.S. Bankruptcy Code, discussing the basic principles of bankruptcy, including automatic stay of debt collection activities upon commencement of a bankruptcy suit, the timing and requirements for discharge under different forms of bankruptcy, liquidation of assets under Chapter 7, and confirmation of Chapter 11 plans for reorganization.
Clients often see bankruptcy as a last resort, Steiner said, failing to understand how it can help. This perception can lead them to make some unwise decisions. “They’ll do anything else other than talk to a bankruptcy lawyer. They’ll cash out their 401Ks, they’ll take on new debt with a personal guarantee. They’ll take out personal debt that they then use on the business. This, unfortunately, happens all the time,” he said. However, as his overview of the Bankruptcy Code showed, there are protections that can help the debtor keep important assets or get their business back on its feet without making these financial sacrifices.
For example, “in an individual bankruptcy almost all retirement accounts are fully exempt; they cannot be touched by creditors as long as they’re an ERISA-qualified retirement account,” said Steiner. “Nothing breaks my heart more than when I see debtors cash out their entire retirement account and come to me two years later and say, ‘I thought I could deal with this; it’s gotten worse and now I have no retirement.’ It’s better to talk to a bankruptcy attorney before any drastic decisions are made.”
Bankruptcy lawyers need to be aware of recent changes to bankruptcy laws and offer new options to small business clients, Steiner said. The Small Business Reorganization Act of 2019, which took effect in February 2020, provided a streamlined process by which small business debtors can reorganize and rehabilitate their financial affairs. Steiner discussed the benefits provided under the act, how to qualify for them, and the restrictions or burdens created by their use.
Although the presentation focused on the different forms of bankruptcy available to small businesses and the impacts of their utilization, Steiner’s occasional asides suggested how simply understanding and communicating information about bankruptcy’s protections could benefit a lawyer’s clients. After all, personal and small business bankruptcies can have far-reaching implications, he said.
“Often there’s a lot of shame and guilt around bankruptcy. There’s a stigma. The way stigma is overcome is through education,” Steiner added.
For an additional opportunity to learn more about the topic, sign up for the November 17 CLE course “Bankruptcy 101 for Non-Bankruptcy Lawyers: Spotting the Issues 2021.”