The past few years have seen an increase in the number of bankruptcy cases filed for dentists and doctors. The reasons are not difficult to comprehend. As average household incomes decline in the economic environment currently existing, expenditures on health tend to decline as well. All but the most necessary procedures are postponed or forgotten. A concurrent rise in operating costs (insurance especially, but also in medication) contributes to the stress of operation. Changing regulations, the confusion sown by new laws, and reduced payments from Medicare and Medicaid reimbursements have not helped matters.
In the United States, medical and dental care providers are essentially run as for-profit businesses. Doctors, dentists, labs, hospitals, and clinics are also run as businesses in most situations. Yet, like many professionals (accountants, attorneys, architects, engineers, etc.), physicians and dentists usually are not trained in school how to run or market a business. At Phillips & Thomas, we have also represented physicians and dentists who have experienced very serious and unexpected events that have contributed to their business troubles.
Like all situations where small businesses are in distress, the most important thing is to take action quickly to address problem areas. We have found, from our experience in representing professionals, that moving quickly to address debt and reorganization issues is absolutely critical. Doctors and dentists face special issues that are not seen in other types of small business debtors. A Chapter 11 filing can do the following:
- Stop certain actions of regulatory agencies that may be seeking to investigate or close down a practice
- Enable the debtor to break out of leases, contracts, or agreements that are weighing on the business
- Stop all creditor calls, harassment, or collection activity
- Enable a greatly-needed “breathing space” for the filing of a plan of reorganization
- Stop the actions of creditors who may be trying to repossess medical equipment or dental equipment
- Stop the actions of tax authorities who may be trying to file tax liens or garnishments for the alleged non-payment of sales tax, withholding tax, or income tax
The key thing is that the filing of a Chapter 11 reorganization will enable a dentist or doctor to continue to do what he or she loves, and also provide a way to continue to operate the business as a going concern. In a Chapter 11 case, the debtor is a “debtor-in-possession” which means that he or she remains in charge of the operation of the business. No one will step into your shoes and try to interfere with how you run your practice. In a debtor-in-possession scenario, no trustee is appointed. You, the owner of the business, retain the rights, duties, and obligations of a “trustee” in dealing with your property and operating the business.
Essentially, you become your own “trustee.” You can obtain new loans and new credit while you are in a bankruptcy. You have the option of assuming, rejecting, or assigning leases or executory contracts that may exist. Our list of articles on this website dealing with Chapter 11 is very detailed and wide-ranging, and can be found by clicking on the tab on the right side of the home page of this site, under “Chapter 11 Bankruptcy In Kansas City.”
From our experience, these are the typical issues that affect physicians and dentists:
- Physical damage or problems with physical premises (fire, accident, etc.);
- Student loan debts are generally much larger than the average debtor. Interest rates can be changed, monthly payments can be changed, and if certain conditions are met, actions can be taken to seek the complete discharge of these debts.
- Data loss from computer network crashes or file management issues that cause a drop in revenue;
- Divorce or dissolution proceedings;
- Increased operating costs (medications or supplies) that affect the bottom line;
- Equipment issues (problems with dental equipment or physician equipment or action by a lienholder);
- Dealing with the large and often collateralized (with business equipment) loans that are typically found in doctors’ or dentists’ offices;
- With dentists or physicians, there can be ethical or professional conduct issues that can relate to client files and ethical obligations for ongoing patients;
- Dealing with the state regulatory agencies or state licensing authorities. State regulatory agencies and licensing bureaus typically do not have a sophisticated knowledge of bankruptcy reorganizations and a debtor’s rights under it. In some cases, these regulatory agencies overreach or fail to understand a debtor’s rights. It is important to have an attorney who knows how to deal with these agencies. At Phillips & Thomas, we have experience in this area.
Bankruptcy reorganizations for doctors, medical clinics, health care providers, and dentists have special issues that are not found in other types of cases. Depending on the goals and situation of the business or individual, it may be necessary to consider all of the relevant chapters of the Bankruptcy Code to see which chapter is appropriate for the situation (Chapter 7, 13, or 11). Again, we can’t stress enough the importance of getting guidance and advice at the earliest stages of difficulty.
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