While Colorado residents are frantically searching to find employment in the wake of the coronavirus pandemic, many businesses are also struggling to stay afloat. Nine businesses filed for bankruptcy in Denver alone the last two weeks of July and 66 businesses in total filed between January 1 through July 31, 2020, representing a 20% increase over the city’s 2019 bankruptcy filing rates for the same time period. The alarming figures are leaving many to wonder when – and if – the economy will bounce back.
What Types of Bankruptcy Can Businesses File?
Businesses can file for bankruptcy under either Chapter 7 or Chapter 11. Chapter 7 is an option for both consumers and businesses and works by liquefying the debtor’s assets in order to discharge most of their debts. Companies that file under Chapter 7 typically do not intend to remain in business.
Among the local Denver businesses that filed for liquidation bankruptcy protection recently include: Elemental Energy LLC (topping the list with debts approximating $1 million and assets ranging from $100,0001-500,000), Steadfast Events of Colorado LLC, Village Wood Fired Pizza LLC, Alteris Renewables Inc., RGS Financing Inc., and Paragon Processing LLC.
Chapter 11 is the business equivalent of Chapter 13 and works by reorganizing the filer’s debt into a more affordable pay-back plan. Chapter 11 is usually preferred for businesses because it allows them to continue operating while paying creditors.
Gunsmoke LLC, a shooting range and gun club in Denver, filed for Chapter 11 bankruptcy on July 22 after facing foreclosure back in May, among other debts.
Unusual Colorado Business Bankruptcy Filings
Paragon Processing LLC’s bankruptcy journey stands out from among the rest. For one, the CBD and hemp processing company filed for involuntary Chapter 7 bankruptcy protection, whereas the other businesses filed voluntarily.
Most businesses and individuals file for bankruptcy voluntarily in an attempt to seek financial relief. Involuntary bankruptcy proceedings, on the other hand, are quite rare and initiated by creditors in an attempt to seek payment for the debt they are owed. Creditors usually petition the courts to initiate involuntary bankruptcy proceedings when they believe the debtor is able to pay what they owe, but for some reason, refuses to do so.
Oddly enough, and unlike the other Denver businesses that petitioned for bankruptcy around the same time, Paragon did not list any assets or debts in their filing documents. Even more curious, the company has chosen to forgo representation with a Colorado bankruptcy lawyer, and instead, has decided to self-represent themselves in court.
The choice is extremely unusual, especially for a business. Bankruptcy is a very complex process that requires both individuals and businesses to list their debts, assets, and income with immaculate detail. Just one small omission can lead debtors to have their petition for bankruptcy protection denied, whereas an experienced attorney can ensure all information is submitted accurately.