Small Businesses Walking Away
In 2008, homeowners walked away from mortgages.
Thanks to the Small Business Reorganization Act of 2019 (SBRA), in effect as of February 19, 2020, small businesses have an easier shot at doing the same.
For example, the Twisted Root Burger grew quickly, but co-founder now says ‘I’m gonna walk away’ from some locations.
Twisted Root Burger was a Texas success story, expanding from one casual restaurant in 2006 to 24 sites including restaurants, bars, a brewery and a theater. Now, the company is moving fast in another direction—into bankruptcy.
“I’m not gonna open that restaurant at half the revenue,” said co-founder Jason Boso. “I’m gonna walk away from those restaurants. I’m not gonna set myself up for failure.”
More than 500 companies filed for bankruptcy under the small-business bankruptcy rules since February, according to the American Bankruptcy Institute. June was the top month for filings with 131 cases; many were filed in states hit hard by the pandemic like Florida, Texas, California, New York and Illinois.
“It was somewhat prescient,” said Ryan Wagner, a restructuring and bankruptcy attorney with international law firm Greenberg Traurig LLP. “It was passed without the foresight of the pandemic.” The law is the most significant change to the bankruptcy code since 2005.
SBRA Highlights
- Applies to businesses with $2.7 million in liabilities, raised to $7.5 million under coronavirus stimulus
- Owners continue operating their business while in court
- Owners can retain equity after exiting bankruptcy
- Owners can modify residential mortgages if home was collateral for a business loan
- Faster turnaround to save time and minimize legal fees
- Owners generally have three to five years to repay creditors
- Creditors can be paid based on a business’s projected income
Walking away gets a new lease on life, this time for small businesses. And many of these jobs are never coming back.
Mish
In the last decade, debt has soared across the globe. Of great concern should be the growth in non-recourse loans as well as unsecured personal loans. These are particularly dangerous.
Many investors have become seduced into thinking the backing of government adds tremendous validity to both the explicit and implied warranty that come with government-backed instruments. History, however, has shown public debt can also be mishandled with creditors not getting paid or being paid with a less valuable currency eroded by inflation. Yes, even government bondholders will suffer. More on this topic in the article below.
Bankruptcy is the american way.
At least it used to be. Quick, widespread and universal access to BK protection, used to be one of America’s strengths: Putting and end to stuff which didn’t work, such that the resources tied up, could be repurposed.
As America has regressed ever further back to a slave state over the past decades, BK has also been increasingly moving towards Middle East style debtors prisons, as well as junta facilitated indentured servitude.
“Capitalism without bankruptcy is like Christianity without hell.”
Well the word mortgage translates to death pledge. No one should say they weren’t warned.
Mish, I hope your move went well for you and your wife.
Bullish for restaurant chains and Amazon!
The larger the corporations are the pre-picked winners.
Nancy Pelosi got a half million from PPP for her and her husbands hotel. Funny how Mish did not do a story on that….. Can you imaging the outrage if Trump had accessed PPP?
PPP was just another back door bailout for Wall Street,who got the brunt of the cash? Hedge Funds,Bond Funds,lawyers lol,DC corporate insiders with there paid lobbyists.How much of that 2 trillion went to small businesses? They’ll never tell!
Don’t forget the Fed bond buying of all the large corps too..some of which aren’t even American. The Fed is in the business of bailing out the world….we’ll see how that goes. Once the price inflation in food prices really gets going while people’s house values start dropping they’ll start to realize what has been wrought.