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What does Chapter 11 look like for a private practice?

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  • What does Chapter 11 look like for a private practice?

    Why does it feel like I just threw out a hand grenade and am waiting for the countdown? [sorry for the title but it's all I could come up with that was succinct and to the point]

    I'm a private practice physician in a state that has mandated a shelter in place order. While I realize that does not apply to physician practices, we have chosen to close our offices to minimize risk to our staff and patients.

    We are looking at numerous options to make up for the significant loss in patient visits and revenue including furloughs for employees. However, we have not looked at declaring bankruptcy and seeking Chapter 11 protection.

    I was hoping someone here may have insight into this specifically as it pertains to a medical private practice.

    What does Chapter 11 look like?
    What happens with insurers, etc
    Besides the stigma, what are the pros and cons of pursuing this?
    What are the ramifications to the partners/owners in a C-corp, S-corp, or LLC?

    Thanks!

  • #2
    Cut expenses to the bone, work out a payment plan with your landlord if you must, hunker down and then reopen to get the cash flowing again in 2 months. Are you that cash poor or that poor of a credit risk that you cannot take a loan to get through the next few months?

    Comment


    • #3
      Do you have business interruption insurance? Go to skeletal staff.

      Comment


      • #4
        Statistically, many of us will contract coronavirus and develop limited or no symptoms and many won't contract it. Make sure you are adequately assessing the health risk versus the impact of a business closure/bankruptcy.

        In our state, business with 2-100 employees can get a $50K 12 month zero interest bridge loan for COVID impact. You are highly likely to find something similar or identical in most states. Usually a federally backed loan thru your state's department of economic development. That may buy a month or two of expenses with a skeleton staff. The coming stimulus bill may offer more relief in the form of further loan guarantees, payroll tax holiday, direct employee checks, etc.

        A line of credit against your business or office building (if you own it with equity)?

        You can, in short order, implement telemedicine for revenue generation remotely if this is conducive to your specialty. Or you can shut down operations, live off of personal and business savings and reopen in due time if that would avoid a bankruptcy. Unfortunately you will have to let go of your staff but payroll, the biggest expense would be resolved, as well as other expenses such as office supplies and medical supplies, vaccines/injectables, etc. Maybe you and your staff can withstand just a 2-4 week furlough then reopen, unless you thing this is going to be more long term.

        If a bankruptcy filing is the only option, a bankruptcy attorney will be necessary to answer your questions. I suspect no one will really have the answers here - especially given the impact of bankruptcy filing is probably dependent on more intimate details of your specific situation.

        Comment


        • #5
          Originally posted by Hatton View Post
          Do you have business interruption insurance? Go to skeletal staff.
          Typical BI insurance is really specific in coverage.
          "communicable or infectious diseases" and "civil authority" coverage are the two avenues that coverage might be available. One would need to really dig in.
          https://www.jonesday.com/en/insights...policy-checkup
          https://www.fosters.com/news/2020032...navirus-losses

          Comment


          • #6
            Thanks everyone. Sorry for the delay in replying.

            We have at least 300k in cash after last payroll and are looking at layoffs vs furloughs to trim further.

            Just wanted to get a sense of what Ch 11 might look like as it feels taboo to even bring it up.

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            • #7
              ^^^ I am not a lawyer. I don't think you'd be allowed to declare bankruptcy with $300,000 cash, if that's business funds. Is that not enough for ~2-3 months of expenses?
              "Oh look another bajillion point declin-Ooooh!!! A coupon for pizza!!!!" <--- This is what everyone's IPS should be. ✓✓✓

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              • #8
                https://www.investopedia.com/terms/c/chapter11.asp
                Read. Probably not the best option.

                Comment


                • #9
                  Originally posted by Tim View Post

                  Typical BI insurance is really specific in coverage.
                  "communicable or infectious diseases" and "civil authority" coverage are the two avenues that coverage might be available. One would need to really dig in.
                  https://www.jonesday.com/en/insights...policy-checkup
                  https://www.fosters.com/news/2020032...navirus-losses
                  I was able to use my insurance coverage in 2011 after several tornadoes hit my town. The electricity was out for a week. My office was not hit. I could not see patients in the office but the hospital was open and running on generator power. No elective surgeries but OB continued as usual. My accountant helped my office manager fill out the forms from the insurance company to document the lost revenue and I got a check.

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                  • #10
                    https://disasterloan.sba.gov/ela/

                    I will be applying to that one soon. Decent terms. 3.75% is good and can qualify for 2 million. Good luck.

                    Comment


                    • #11
                      Not directly related to the original question but I thought this chart was interesting. This is reportedly from a JP Morgan Chase study but I'm afraid I don't have a link to the original study. The average "Health Care Service" has about a month cash on hand to cover expenses. In addition, it seems to me the average practice has a lot of money in accounts receivable that will continue to come in for a month or two. The crunch would come when you burn through your cash and money coming in, then have to reopen with no cash and a much smaller AR.

                      Click image for larger version

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                      • #12
                        Originally posted by Hatton View Post

                        I was able to use my insurance coverage in 2011 after several tornadoes hit my town. The electricity was out for a week. My office was not hit. I could not see patients in the office but the hospital was open and running on generator power. No elective surgeries but OB continued as usual. My accountant helped my office manager fill out the forms from the insurance company to document the lost revenue and I got a check.
                        You are sooo smart. I am sorry for the damage. The BI damage was caused by the tornado. Covered.
                        If you were hit by the tornado, your coverage would have been under your property insurance. Covered.
                        Infectious diseases and flooding insurance wise are identified as unique causes and handled differently depending on the policy.
                        Btw, did you decide on covid clinic request from your old hospital? Just curious.

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                        • #13
                          Originally posted by Tim View Post
                          You are sooo smart. I am sorry for the damage. The BI damage was caused by the tornado. Covered.
                          If you were hit by the tornado, your coverage would have been under your property insurance. Covered.
                          Infectious diseases and flooding insurance wise are identified as unique causes and handled differently depending on the policy.
                          Btw, did you decide on covid clinic request from your old hospital? Just curious.
                          No follow up call. Ambivalent about it so did not follow up. NY state is calling up retired doctors and nurses. My area has a few cases not overwhelmed at this time. The heat and humidity of the deep South may be somewhat protective from what I read.

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                          • #14
                            Originally posted by Rando View Post
                            Not directly related to the original question but I thought this chart was interesting. This is reportedly from a JP Morgan Chase study but I'm afraid I don't have a link to the original study. The average "Health Care Service" has about a month cash on hand to cover expenses. In addition, it seems to me the average practice has a lot of money in accounts receivable that will continue to come in for a month or two. The crunch would come when you burn through your cash and money coming in, then have to reopen with no cash and a much smaller AR.

                            Click image for larger version

Name:	90209488_1590008614456719_5275595805275717632_n.jpg?_nc_cat=104&amp;_nc_sid=da1649&amp;_nc_ohc=U_VGQWU3GOYAX81a6wf&amp;_nc_ht=scontent-ort2-2.xx&amp;oh=7fe8a0ee79cbae6da04704a74e13aa22&amp;oe=5E9F7AA2.jpg
Views:	296
Size:	102.0 KB
ID:	194569
                            Oh my. I didn't realize people keep such a small emergency fund. This explains why some here criticized my one year cash equivalent emergency fund, inclusive of personal, business and real estate expenses. I even keep an untapped credit line that covers another 4 months or so. It was criticized as being a cash drag, as it represents about 12% of total NW.

                            Lately the drag has been the outperformer relative to the markets. The critics have taken a break. Glad I preserved it given I of course expected the markets to crash a few months ago. Nothing beats the benefit of foresight - deleveraging, preparation and risk mitigation.

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                            • #15
                              Originally posted by EntrepreneurMD View Post
                              In our state, business with 2-100 employees can get a $50K 12 month zero interest bridge loan for COVID impact. You are highly likely to find something similar or identical in most states. Usually a federally backed loan thru your state's department of economic development. That may buy a month or two of expenses with a skeleton staff. The coming stimulus bill may offer more relief in the form of further loan guarantees, payroll tax holiday, direct employee checks, etc.

                              EntrepreneurMD What state are you in? And where did you find that "bridge loan"?

                              I am a partner of a small dental practice in Arizona and have been investigating our options and had seen the SBA loan at 3.75% interest but have not seen what you are referring to. Our office probably has funds for ~ 3 months and are working with our bookkeeper to confirm that and nail in a more specific timeline.

                              Additionally why I would be interested in this bridge loan is that I just took out a large loan for the practice buy-in <6 months ago with a non-B of A bank and have been working with my bank to try to get them to match Bank of America's 90 days interest-free deferral period. My bank is trying to do a 6-month standard deferral where interest will continue to accrue which is less ideal as, so early in my loan, interest is such a substantial portion of my monthly payment.
                              Last edited by James21; 03-27-2020, 11:27 AM.

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