Since its inception, subchapter V of chapter 11 has been lauded for providing a streamlined path through chapter 11 for smaller chapter 11 debtors without many of the costs associated with “traditional” chapter 11 cases. But before a debtor can elect subchapter V treatment and take advantage of these benefits, the debtor must have less than $7.5 million in total noncontingent, liquidated debts (both secured and unsecured).
Small businesses struggling to find funding have turned to alternative options such as merchant cash advances in recent years. Such deals have threatened the existence of some of these mom-and-pop operations, WSJ Pro Bankruptcy reported. More than 100 businesses that filed for chapter 11 since the start of 2023 have attributed their bankruptcies at least partly to cash advances, up from at least 68 for 2022 and 16 for 2021, according to a Wall Street Journal review of court records. A Brooklyn clam bar visited by celebrity chef Anthony Bourdain, Brooklyn retail chain Showfields, known for showcasing local vendors and artists, and, last week, Florida-based countertop maker International Granite & Stone are among those restructuring in chapter 11. These merchant cash financiers, estimated to be about 100 participants, provided $19 billion in 2019, up from $8.6 billion in 2014, according to estimates in a 2023 report published by the U.S. Consumer Financial Protection Bureau. The growth has prompted the CFPB to try to tighten regulation on the industry, leading the cash providers to fight back in a lawsuit against the regulator. Since the COVID-19 pandemic government financial aid dried up, some companies have sought capital from financiers that provided a lump sum, in exchange for a share of future revenues of the businesses, plus fees. To get repaid, the cash providers can make regular, including daily, withdrawals from businesses’ bank accounts. The popular financing comes at a cost. A 2019 Federal Reserve report said the equivalent annual percentage rates for cash advances can exceed 80% or “even rise to triple digits.” “We frequently see this…that in the last days before a bankruptcy filing, a company got in over its head with these merchant cash advances,” said Bankruptcy Judge Stacey Jernigan during a recent American Bankruptcy Institute event. “They very often seem to be the ones that caused the bankruptcy,” Judge Jernigan said, describing the financing as “pricey” or even “onerous.”
Two popular eateries in Chicago have filed for bankruptcy, CBSNews.com reported. Etta Collective, restaurateur David Pisor's company, elected to file under subchapter V of chapter 11 bankruptcy for Aya Pastry, 1332 W. Grand Ave., and the Etta location in Bucktown, at 1840 W. North Ave. Both eateries remain open. There is also an Etta location in Scottsdale, Ariz. This comes less than three weeks after Etta's location at 700 N. Clark St. in River North shut down. In a statement to customers, Aya Pastry said the bankruptcy filing was important to restructure the debt of its parent company. "This past year has been particularly tough for the restaurant industry, and our parent company was not immune to these challenges," according to a company statement.
Seattle-based research device company NanoString Technologies Inc. has secured $47.5 million in debtor-in-possession financing following its Feb. 4 announcement that it has filed for chapter 11 bankruptcy protection in federal court in Delaware, the Puget Sound Business Journal reported. The company's debtor-in-possession financing includes $12.5 million that has already been approved by the bankruptcy court, while an addition $35 million still needs final approval, expected in late February. The amount is up from an initial $40 million commitment announced early last week, and is being provided by the company's existing lenders. "With this financing, we will continue to conduct business as usual," NanoString CEO Brad Gray said in the release. "We are concurrently exploring several strategic options with the goal of assuring the long-term continuation of our mission, on behalf of all NanoString stakeholders including our customers and employees.” NanoString has filed for bankruptcy after being hammered by legal battles with competitor 10x Genomics Inc. over patent claims. When NanoString announced the bankruptcy filings, it said in a news release that it was considering options such as selling the company or certain product lines.
Total bankruptcy filings were 36,607 in January 2024, a 17 percent increase from the January 2023 total of 31,176, according to data provided by Epiq Bankruptcy, the leading provider of U.S. bankruptcy filing data. January marks 18 consecutive months that total, individual, and commercial bankruptcy filings have registered monthly year-over-year increases. Individual bankruptcy filings also increased 17 percent in January to 34,515, up from the January 2023 individual filing total of 29,448. There were 19,590 individual chapter 7 filings in January 2024, a 25 percent increase over the 15,717 filings recorded in January 2023, and there were 14,871 individual chapter 13 filings in January 2024, a 9 percent increase over the 13,678 filings last January. Overall commercial bankruptcy filings rose 21 percent in January 2024, with the 2,092 filings ticking up from the 1,728 filings in January 2023. There were 460 commercial chapter 11 filings recorded in January 2024, a 22 percent increase from the 378 commercial chapter 11s in January 2023. Small business filings, captured as subchapter V elections within chapter 11, increased 43 percent to 176 in January 2024, up from 123 in January 2023.
