Jeffrey M. Rosenblum, P.C.
A Fresh Start

Chapter 11 bankruptcy for ailing doctor's offices

The medical profession, one might think, is recession-proof. After all, there are always sick people, whether the economy is good or bad. But, in fact, the sluggish economy has taken a toll on doctor's offices in New York and across the country. As a result, increasing numbers of doctors are filing for business bankruptcy.

Analysts say there are different reasons why doctors choose Chapter 11 or another form of business reorganization. But clearly the same factors dragging down the consumer market are having an effect on the medical industry. Many patients, in an effort to save money, are putting off their visits to the doctor and are forgoing elective procedures. At the same time, there are factors unique to medicine, such as insurance reimbursements, which have been shrinking in recent years, and medical malpractice insurance rates, which have been rising. Whatever the reasons, many doctors are finding that their revenues have declined and their expenses have grown. For some of them, bankruptcy is the only option.

Chapter 11 bankruptcy is a way for a business to file for protection from creditors while reorganizing. Unlike Chapter 7, which is generally used to liquidate a business, Chapter 11 is designed to help a business get back on its financial feet and become profitable again.

Chapter 11 is often associated with big corporations, but it is also used by small businesses that meet the qualifications. In fact, businesses with fewer than 500 employees make up the vast majority of filers for Chapter 11.

To qualify, a small business must have total debts of less than $2.19 million. Filers must give the court a copy of their most recent balance sheet, a statement of operations, a cash-flow statement and a copy of their most recent federal income tax returns.

The bankruptcy court will then oversee the filer's reorganization plan, and will require continuing reports on profitability and other business information. The court will also appoint a trustee.

Owners of struggling small businesses in New York should research Chapter 11 to see if it is a good fit. When conducted property, Chapter 11 can be a powerful tool in getting a struggling small business back in shape.

Source: CNN Money, "Doctors driven to bankruptcy," Parija Kavilanz, April 8, 2013

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