Dispelling Common Misconceptions of US Business Bankruptcy

Dispelling Common Misconceptions of US Business Bankruptcy

For many businesses, the threat of bankruptcy has become all too real over the past two years. Though emergency pandemic measures and economic stimulus have assisted many in the US, the fear of bankruptcy – and misconceptions surrounding it – has surged.

In this feature, Daniel Etlinger tackles the subject of bankruptcy in greater depth, dispelling common myths and outlining how businesses and their owners can use bankruptcy to better themselves.

In your experiences of assisting businesses, what do they often misunderstand about bankruptcy?

Bankruptcy is often seen as a failure or measure of last resort, when in fact for many it can be a great opportunity. Often, a bankruptcy proceeding can arm the debtor with the necessary structure to accomplish its objectives, such as a sale free and clear of liens, assumption and assignment of a lease over a landlord’s objection, or restructuring debt service.

The other big misconception that businesses have going into bankruptcy is that they need to fight everyone. Quite often, a successful bankruptcy is built upon picking and choosing your battles – or, in other words, knowing which creditors can settle out or otherwise be resolved to pave the way for a more consensual process.

How can a properly executed bankruptcy assist companies and their owners in bouncing back?

Bankruptcies can assist companies and their owners whether it is in a liquidation or reorganisation setting. In liquidation, the company remains in the driver’s seat and gets to lead the sale process. In reorganisation, the parties have a number of tools to utilise in getting back on their feet.

First and foremost is the automatic stay, which helps hit the pause button on exacerbating circumstances. Second, the debtors have vehicles in place, subject to notice and a process, of selling property free and clear, assuming and even assigning a lease over a landlord’s objection, or alternatively rejecting unwanted executory contracts and unexpired leases, and other remedies to help reshape its operations. Third, a debtor may restructure some of its debt service to stretch payments out over time or obtain other modifications to provide necessary relief.

Bankruptcy is often seen as a failure or measure of last resort, when in fact for many it can be a great opportunity.

What distinguishes Chapter 7 and Chapter 11 bankruptcy, and what determines whether one or the other is best for a business’s needs?

The distinction between a Chapter 7 and 11 boils down to one simple word: control. In a Chapter 11, the debtor retains control of their operations and, subject to some oversight, maintains the day-to-day operations in their normal course. In determining which path is right for you, the first question is whether the business wishes to continue or shut its doors. If the former, then a Chapter 11 would be preferable. If the latter, the business must evaluate the costs, timing, control and other factors between the two.

What must a business be aware of as it prepares to file for bankruptcy? What particular preparations should it make?

A business must be cognizant of the timing to its bankruptcy. Too late and even the most skilled bankruptcy practitioners cannot resurrect a doomed case. Too soon and the exit path may not have fully developed.

A second consideration in particular would be to going into the bankruptcy with a sufficient ‘war chest’ to fund the necessary work. At a bare minimum this means seeing the main bankruptcy through, but it should also mean anticipated adversaries or contested matters with particularly contentious creditors to ensure there is enough to keep the professionals engaged.

What advice would you give to a less experienced bankruptcy lawyer who is preparing to assist a business through bankruptcy proceedings?

A great bankruptcy attorney not only helps navigate the case directly but helps quarterback the entire team. A successful bankruptcy may depend on contributions from a CPA, realtor, special counsel and more. An experienced bankruptcy attorney can assist with everything from putting together the professionals, to communication between the members, to overseeing the projects to make sure everyone is rowing in the same direction.

What impact do you foresee Water Street having on Tampa’s bankruptcy market?

Water Street may actually have a chilling effect on Tampa’s bankruptcy numbers as it is sure to stimulate growth and the economy. That said, we still could not be more thrilled for the project! Water Street looks to showcase the technological forefront to achieve both form and function. Among some of its features, Water Street deploys DAS (distributed antenna system) or small cell coverage to improve cell service on site, an open and secure WiFi network architecture, smart light poles which connect to emergency management platforms, digital signage, smart parking and even smart waste management systems.


Daniel Etlinger, Partner

Jennis Morse Etlinger

606 East Madison Street, Tampa, Florida 33602, USA

Tel: +1 813-229-2800 | +1 585-733-9792 (Cell)

Fax: +1 813-405-4046

E: detlinger@jennislaw.com


Daniel Etlinger is a partner with Jennis Morse Etlinger in Tampa, Florida. He focuses his practice on transactional representation, particularly in commercial bankruptcies, corporate law, financial services and real property law. He has authored several articles on bankruptcy matters and recently served as a panellist at St. Leo University’s presentation on ‘Re-Imagine Your Future Under Subchapter V: A Chapter 11 Survival Tool’ and participated as a guest lecturer at Stetson University College of Law’s bankruptcy course.

Jennis Morse Etlinger is a law firm based in downtime Tampa and Sarasota and centred on producing the best outcomes for its clients. The team listens closely and understands the various elements of a client’s life that may be applicable to their legal issue and then maps out a strategy to achieve those goals, marshalling its wide-ranging experience to deliver holistic legal solutions of long-term value. The firm focuses on bankruptcy and insolvency, commercial litigation, and complex transactions and acquisitions.

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