Bankruptcy Guide for Restaurant & Bar Owners in NYC
COVID-19 has affected practically every industry in New York City, but few businesses have been impacted as severely as bars and restaurants. When Governor Cuomo put the city on pause on March 22, establishments that couldn’t transition to a takeout or delivery model had to close, and many of them did not reopen.
Shortly after the crisis began in March, the James Beard Foundation in New York surveyed nearly 1,500 chefs, restaurant and bar owners, and employees, and found that over 60% of respondents could not afford to close for a single month. They also admitted to having laid off over half of their salaried workforce and three-quarters of their hourly employees.
Last September, New York started allowing indoor dining with a maximum capacity of 25%, but many restaurants are still struggling to make ends meet on this more limited income stream, and indie establishments that lack the clout to negotiate delivery fees with Doordash or Grubhub are in even worse shape.
What about insurance?
Some bar and restaurant owners carry insurance that includes a so-called virus rider, which is meant to cover forced shutdowns. (For example, an employee contracts Hepatitis, which forces the establishment to close temporarily and sanitize everything.) Many of these businesses are now fighting with insurance companies which claim that COVID-19 falls beyond their policy scope.
What about government assistance?
When the Paycheck Protection Program (PPP) was introduced as part of the CARES Act, there was immediate hope because PPP loans are forgivable when you use them for purposes like employee wages and health coverage. Unfortunately, it appears that the loans have been difficult for smaller businesses to obtain, and those that do are continually worrying whether they are using the money correctly so that the loan will eventually be forgiven.
Can bankruptcy help?
There are two bankruptcy options available to restaurant and bar owners, each with their advantages and disadvantages. Which one makes the most sense for you will depend on your financial circumstances and business goals.
Chapter 7 is a liquidation bankruptcy, meaning that your restaurant will cease all business operations and close down permanently. If the business appears to be beyond saving, this bankruptcy option may be the way to go. The only possible obstacle is that you cannot file if you filed an earlier bankruptcy petition and it was dismissed within the previous 180 days because you did not show up in court.
Your creditors will be paid in order of priority and a trustee will be appointed to sell any secured assets and pay these claims. The process takes about six months from start to finish, leaving you free to begin anew.
One of the best-known eateries to file Chapter 7 was Garden Fresh Restaurants, owner of the buffet chains Souplantation and Sweet Tomatoes, which closed permanently on May 14.
With Chapter 11, you reorganize your business debts and keep your doors open, provided that you and your creditors agree on a sustainable repayment plan. At one time, Chapter 11 was not a feasible option for smaller restaurant and bar owners because it was time-consuming and expensive. The Small Business Reorganization Act of 2019 made it available to a wider range of businesses, but it is still comparatively complex and you’ll need guidance from a bankruptcy attorney.
On April 10, FoodFirst Global Restaurants, the parent company of the Bravo Fresh Italian and Brio Italian Mediterranean restaurant chains, filed for Chapter 11 bankruptcy, after 71 of its restaurants had temporarily closed due to COVID-19.
Which chapter should you file?
The answer to this question depends on your situation. If your current debts are impossible to manage at the moment but you foresee the restaurant becoming profitable in the coming months, Chapter 11 may give you the respite you need to regain your financial footing. If you honestly don’t see any way that the business can recover, Chapter 7 can provide the debt relief you need.
What happens after your restaurant files for bankruptcy?
If you file for bankruptcy in New York, an experienced attorney will prepare the paperwork, most of which will be financial disclosures. Once the petition is filed with the court, an automatic stay goes into effect that halts all creditor collection efforts, including lawsuits.If you’re filing Chapter 11, your attorney will also draft reorganization and payment plans that outline how much you will repay your creditors as well as which ones are paid first and how long repayment will take. If the terms are accepted at a subsequent confirmation hearing, you carry on business and provide periodic progress reports to the court. Should you fail to meet the terms of the repayment agreement, you will have to file for Chapter 7 and close the business.
Is bankruptcy the end of your career as a restauranteur?
Let’s be clear: filing for bankruptcy does not mean you will never open another restaurant or bar again. A high number of business owners have used it to extricate themselves from a financially impossible situation and start afresh.
While it’s true that you may encounter difficulty obtaining business loans for awhile after your discharge, it won’t be too long before you qualify for credit at a favorable interest rate and can begin the next stage of your professional journey.
Review your business situation with a New York bankruptcy lawyer
COVID-19 has left thousands of restaurants and bars across NYC in a state of crisis. Many have closed while others have reduced operations to stay afloat. Some have filed for Chapter 7 or 11 bankruptcy.
At Gershburg Law, P.C., we have been helping small business owners like you receive bankruptcy protection so that you can put your debt challenges behind you and proceed with your life. We will go over your business financials and recommend the best approach for getting the debt relief you need. To schedule a free and confidential consultation with a New York bankruptcy attorney, call 866-554-4638 or contact us online.