COVID-19: Bankruptcy and its Impact on Managing Risk


By: Jake Carroll

In the wake of COVID-19 and the now-present economic uncertainty, individuals and companies may be considering the impacts of bankruptcy. While bankruptcy can offer certain protections, including delayed payments, discharge of some debts, and a general “fresh-start,” not all debts are dischargeable, and certain obligations could survive after the bankruptcy.

The decision to file for bankruptcy relief, or seek alternative asset protection, can be dependent on several factors, and should not be undertaken without seeking legal counsel, as well as the advice of financial advisors and other risk management professionals. A hasty or poorly-reasoned decision can have negative impacts on many business and personal rights, and limit other options for debt relief or reorganization. FMG’s April 9, 2020 Webinar, COVID-19’s Cascading Impact on Corporate Finances and Loan Obligations (click here to register), will address these issues in greater detail. In the meantime, FMG has prepared a list of Frequently Asked Questions and answers addressing bankruptcy issues below:

  • What is bankruptcy?  Bankruptcy is a general term used to describe proceedings in federal court in which consumers and businesses make seek to delay or reduce their payments, shed debt, and repay creditors only on specialized terms or conditions.
  • Who can file for bankruptcy? As long as you meet certain eligibility criteria, and have not recently filed for bankruptcy, relief may available for both individuals and businesses.
  • Is bankruptcy the same as a receivership? No, although they are similar proceedings.  Receiverships are primarily governed by state laws and involve liquidations of assets by an appointed receiver under court supervision.
  • What are the different bankruptcy “Chapters,” and what is the Importance? Chapters 7, 11, and 13, are the most common types of bankruptcies, and refer to three different Chapters of the Bankruptcy Code, Title 11 of the United States Code. Each Chapter applies to a different situation:
    • Chapter 7.  Chapter 7 bankruptcies are liquidation proceedings for businesses and individuals. In a Chapter 7 proceeding, property is typically sold in order to pay back debts based on secured priorities and formulas determined by the Court.
    • Chapter 11. Chapter 11 bankruptcies are normally used by struggling businesses as a way to get their affairs in order and pay off their debts, while ultimately retaining control of the company. Some individuals may also file for Chapter 11 when they are not eligible for Chapter 13 or own large amounts of non-exempt property (like several homes)..
    • Chapter 13.   Chapter 13 bankruptcies, like Chapter 11, are also used for “reorganizations,” but will involve the appointment of a trustee who can control personal and corporate decisions.   In Chapter 13, a debtor may be allowed to keep some property, but must submit and stick to a plan that will allow repayment of some or all debts within three to five years.
  • What is the automatic stay? The bankruptcy court offers certain protections to debtors during bankruptcy proceedings, the first of which is an “automatic stay” that prohibits creditors from taking action against you or your assets without further order of the Court.
  • What do I do if I receive a notice of a bankruptcy from someone who owes me money? Given the relatively quick pace and potentially significant impacts bankruptcy proceedings can have on outstanding debts, you should contact your attorney or seek legal counsel as soon as possible to ensure your rights are protected, and that all necessary forms are filed to protect your financial interests in any recovery.

Additional Information:

The FMG Coronavirus Task Team will be conducting a series of webinars on Coronavirus issues on a regular basis. Topics include COVID-19’s impact on finances and loans, the FFCRA, the CARES Act and more. Click here to view upcoming webinars.

FMG has formed a Coronavirus Task Force to provide up-to-the-minute information, strategic advice, and practical solutions for our clients.  Our group is an interdisciplinary team of attorneys who can address the multitude of legal issues arising out of the coronavirus pandemic, including issues related to Healthcare, Product Liability, Tort Liability, Data Privacy, and Cyber and Local Governments.  For more information about the Task Force, click here.

You can also contact your FMG relationship partner or email the team with any questions at

**DISCLAIMER:  The attorneys at Freeman Mathis & Gary, LLP (“FMG”) have been working hard to produce educational content to address issues arising from the concern over COVID-19.  The webinars and our written material have produced many questions. Some we have been able to answer, but many we cannot without a specific legal engagement.  We can only give legal advice to clients.  Please be aware that your attendance at one of our webinars or receipt of our written material does not establish an attorney-client relationship between you and FMG.  An attorney-client relationship will not exist unless and until an FMG partner expressly and explicitly states IN WRITING that FMG will undertake an attorney-client relationship with you, after ascertaining that the firm does not have any legal conflicts of interest.  As a result, you should not transmit any personal or confidential information to FMG unless we have entered into a formal written agreement with you.  We will continue to produce education content for the public, but we must point out that none of our webinars, articles, blog posts, or other similar material constitutes legal advice, does not create an attorney client relationship and you cannot rely on it as such.  We hope you will continue to take advantage of the conferences and materials that may pertain to your work or interests.**