Creditor and Bankruptcy Rights of Sole Proprietors and Small Firms
Among the top 15 MSAs, the number of small business bankruptcies increased more than 10% from 2009 to 2010. The primary reasons for small business bankruptcies are:
• Outside business conditions: competition, insurance, general costs.
• Financing: loss of capital, inability to secure new capital, high debt.
• Inside business conditions: management mistakes, location, loss of clients.
• Tax: problems with the IRS.
• Disputes with a particular creditor: foreclosures, lawsuits, contract disputes.
• Personal: illness and divorce.
• Calamities: fraud, theft, natural disasters, accidents.[1]
Lawyers for small business should understand all these causes, how to minimize them, and how to mitigate their effects by taking advantage of innovative bankruptcy strategies, including creative use of Chapter 13 for sole proprietorships.
Additionally, small business lawyers should fully understand the relationship of state debtor-creditor law to bankruptcy. Because of changes in the Bankruptcy Code, as well as changes in the economy, small businesses are finding in more and more cases that bankruptcy may not provide the answers to financial distress. In these cases, to protect fully the interests of the small business, lawyers need to know much more about the relevant state law than the anecdotes and cursory references. Non-bankruptcy, debtor-creditor law has also been affected by underlying revolutions in society, culture, and the economy caused by technology, mobility, and globalization. Because of the scale of these developments, their fundamental effect on the interpretation and application of bankruptcy law, and how they historically complicate the relationship between state and federal law, studying and learning non-bankruptcy debtor-creditor law is more important than ever to understanding bankruptcy.
The content of this course is therefore comprehensive, covering equally bankruptcy law and state laws that the lawyer must know and use to avoid bankruptcy or make it more useful for small business clients.
[1] SBA Study “Financial Difficulties of Small Business and Reasons for Their Failure”
(http://www.sbaer.uca.edu/research/asbe/2004_fall/16.pdf)