Personal and Business Bankruptcy: Chapter 7, Chapter 11, Chapter 13
A recent article from CNN highlighted a growing trend of private-practice physicians filing for bankruptcy. The trend appears to arise out of continuing tough economic conditions within the industry that make it harder and harder for doctors to keep their businesses afloat. For many of these physicians, filing for bankruptcy also mean shutting their doors, forcing patients to find new services elsewhere. This itself can be a problem as more and more physician offices also refuse to take medicaid and some insurances with a bad rep for low reimbursements.
According to CNN, the reason so many doctors are filing for bankruptcy is that a multitude of circumstances have snowballed together to create a challenging financial picture within the industry. Essentially, at the same time costs are rising income is also shrinking, forcing physicians — who are trained to practice medicine, not marketing — to find new sources of revenue.
Factors contributing to the situation, according to the CNN report, include:
Rising costs for malpractice insurance — even for highly skilled doctors who've never been sued for malpractice
Increasing costs for drugs, equipment and other necessities for running a private practice
Patients cutting back on doctor visits because they can’t afford it — whether it be because they have no insurance or they can’t afford the copay
Insurance companies continue to reduce the amount they will reimburse physician offices for services rendered
For private-practice physicians, it means they will have to find new ways to bring in revenue if they want to stay profitable and keep their doors open. Often, the knee-jerk reaction is to cut expenses, such as laying off staff. But this usually just leads to a harried and overworked staff, including the doctors, and, subsequently, further decline in patient visits. Many physician offices are turning to offering supplements and other products and services for sale to generate new income.
For patients of doctors who close up shop, it means finding a new health care provider. If the office that closed its doors was a specialty health care provider, like the oncology clinic mentioned in the CNN article, patients may have to travel to find equivalent health care, which adds a further burden of time and money.
What Doctors Can Do When Debts Get Overwhelming
For physicians whose creditors are continually calling, threatening to take them to court, or have actually obtained judgments against them, its time to take action to resolve that debt crisis. It doesn't necessarily mean that its time to pack up and go home. Oftentimes, an alternative solution can be found. The first steps are to:
Consult with a bankruptcy and debt solutions attorney — an attorney can help determine whether bankruptcy is the best solution or whether there’s a viable alternative that will eliminate or reduce burdensome costs without closing the doors
Look at alternative solutions — Debt restructuring, renegotiating terms with creditors, recapitalization of the firm’s stock, and other solutions can often help improve cash flow so a business can keep its doors open. Bankruptcy and debt solutions attorneys who regularly work with struggling businesses are familiar with a variety of options that most business owners aren't aware of
File Chapter 11 or 13 bankruptcy — If recovery is possible but creditor collections need to be halted or creditors need incentive to renegotiate debt terms, consider filing Chapter 11 or 13 bankruptcy, both of which put an automatic stay on creditor collections, facilitate reorganization of debts, and discharge some debts (your attorney can help decide whether Chapter 11 or 13 is more appropriate to your needs). Chapter 11 or 13 should also be considered if Chapter 7 bankruptcy, which requires closing the business, would affect assets owned personally by owners of the practice.
File Chapter 7 bankruptcy — If reorganizing debts or alternative solutions aren't practical, or if owners of the practice simply don’t want to continue operating the practice, then Chapter 7 bankruptcy may be the right choice. However, filing Chapter 7 bankruptcy will mean closing doors on the business and forcing remaining patients to find a replacement health care provider. Additionally, if any of the owners’ personal assets are tied to the business, i.e. put up for collateral to fund the practice, they will be subject to foreclosure/repossession by the creditor holding the debt unless the loan is reaffirmed. The good news is that once it’s all over, all dischargeable debts will be discharged and practice owners will not have to worry about them.
Consult with someone to find new sources of revenue — If a solution to the practice’s debt issues doesn't involve shutting down the practice, the final step in the formula is to find new sources of revenue to remain solvent. Hiring a marketing consultant specializing in health care practices or a business lawyer is a good idea if the practice can afford it. Otherwise doctors need to consult or brainstorm with other doctors until they find several practical approaches to implement. Then, of course, those approaches have to be implemented.
To find out more about how Chapter 7, 11 or 13 bankruptcy works in Maryland, please read our other articles on Maryland bankruptcy.
If your private health care practice is struggling with debt and cash flow issues or is insolvent, discussing the matter with an experienced bankruptcy and debt solutions attorney can help you determine which options are best for your situation.
In Maryland, bankruptcy and debt solutions attorney John D. Burns and his firm can assist in identifying the best options for your company and help put a plan into action that will resolve your debt and insolvency issues. Call our office at 301-441-8780 to schedule an appointment or e-mail us at firstname.lastname@example.org.