The only other option is Chapter 11 — a form of bankruptcy used mostly by corporations. Individuals can file under this too, "but there are massive reporting requirements," says Weir.
Get help early
The smartest course of action is to avoid the bankruptcy scenario altogether, and the best way to do that is to get help early.
"It can be very difficult for a doctor to admit that he or she has made a mistake that has resulted in financial problems. They don't want to face it early on. As a result, it is difficult to prevent bankruptcy in many cases," says Weir. "As soon as you see that you are in over your head in any way, shape, or form, immediately contact your attorney and try to find a way out," she adds.
"That may mean entering into agreements with people for extended payment plans or paying them some percent on the dollar. If you have just hit a short-term snag, and you can target where you need to protect yourself in order to continue your operations, you [may] avoid going through the bankruptcy at all. If you wait too long to approach your creditors, it will be much more difficult to negotiate with these people," she says.
Estroff concurs, adding that an early start can make all the difference when a practice is in financial straits. In addition to appeasing creditors, a preemptive strike can give a physician greater flexibility at the bank.
Estroff recommends that, as soon as trouble looms for the practice, the doctor should skip a paycheck or take a pay cut to build up the cash reserves. At the same time, he or she must work with the bank to arrange a short-term loan or line of credit that can carry the practice through until cash flow gets sorted out. "Then you are using credit as a tool, rather than as a desperation tactic," he says.
Adam Katz-Stone can be reached via [email protected]
This article originally appeared in the May/June 2000 issue of Physicians Practice.