COVID-19 fundamentally altered the business landscape for many industries, and the dental sector is no exception. Years later, dental practices that once thrived on consistent patient flow, routine appointments, and elective procedures are now grappling with financial uncertainty.
For some, business bankruptcy has emerged as an option—possibly the only option—for survival and regaining stability. But with all the stigma around it, is bankruptcy really the right choice? And if so, which kind?
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The economic pressures that developed during the pandemic are still significant today. While restrictions have eased, the return to normalcy has been slower than expected. Patients remain hesitant about in-office visits due to health concerns, while others may have deprioritized dental care because of financial constraints or changes in health insurance coverage.
At the same time, many dental practices are facing rising operational costs. Personal protective equipment (PPE), new sanitation protocols, and updated ventilation systems are just a few examples of pandemic-related expenses that have increased the cost of doing business. Coupled with mounting debt—whether from equipment loans, office leases, or payroll obligations—many dental practices find themselves in a precarious financial position.
As debt continues to pile up and revenue streams remain strained, bankruptcy may be a practical path for many dental practices. But for dentists and practice owners who have long been successful in their craft, this isn’t an easy decision, as there’s stigma around the concept that implies some failure or flaw in those who file.
However, filing for bankruptcy can provide the breathing room needed to restructure debt, reduce financial burdens, and regain control of a practice’s financial future. Better yet, filing bankruptcy doesn’t necessarily mean closing the business.
Some signs that it might be time to truly consider bankruptcy include:
The best form of bankruptcy for dental practices that want to remain open is Chapter 11 Subchapter 5 bankruptcy. This streamlined version of Chapter 11 bankruptcy was created under the Small Business Reorganization Act of 2019 to make bankruptcy more accessible and affordable for small businesses, including dental practices.
The provisions of Subchapter 5 are designed to simplify the process, reduce administrative costs, and provide a quicker route to financial reorganization—all while the business remains in full operation.
For dental practices facing financial difficulty, Chapter 11 Subchapter 5 offers several benefits over other bankruptcy options:
Unlike Chapter 7 bankruptcy, which involves liquidating assets to pay creditors, Chapter 11 Subchapter 5 allows the business to continue operating while restructuring its debt. This means that the dental practice can remain open, keep serving patients, and continue generating income during the bankruptcy process.
In Chapter 11 Subchapter 5, the owner of the dental practice remains in control of day-to-day operations. While a court-appointed trustee is automatically assigned upon filing, the business owner still retains control over assets and operations.
Subchapter 5 was specifically designed to address the needs of small businesses. It reduces many of the administrative and procedural requirements associated with traditional Chapter 11 bankruptcy, making it faster and more cost-effective for dental practice owners to navigate.
For any administrative fees that are required, the business can spread the payments out in installments across the term of their repayment period, rather than pay in a lump sum.
Under Subchapter 5, dental practices can propose a plan to restructure their debt over three to five years. This allows practices to stretch out payments and negotiate reduced amounts owed to creditors. The goal is to enable the business to become financially stable again without being overwhelmed by immediate debt obligations.
One of the most significant benefits of Chapter 11 bankruptcy is that dental practices can keep essential business assets, such as office space, equipment, and technology, which are crucial for continuing operations. This is particularly important for dental practices that rely on expensive, specialized tools and machinery.
In other bankruptcy cases, a business’s proposed debt reorganization plan must be approved by the creditor. In Subchapter 5, the court has full authority to approve a plan, even if the creditors don’t agree.
Creditors also cannot put forth a reorganization plan of their own. Since the business owner is the only person who can put forth a plan, this helps ensure the plan put forth is one they feel is reasonable.
At The Lane Law Firm, our lawyers are experienced in assisting dental practices in financial distress and guiding them through the complexities of bankruptcy and other business debt relief options. Although we highly recommend Chapter 11 Subchapter 5 bankruptcy for those who qualify, we provide personalized legal information and help practices assess all viable options.
If your dental practice is struggling with debt, we encourage you to schedule a consultation. This consultation is a free, nonbinding, and 100% confidential opportunity to get the information you need to make an informed decision for your practice.