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3 important considerations when filing bankruptcy for a hotel

Hotels require a lot of startup capital. Whether you buy an existing property to take over management or you construct a new hotel, seven and eight-figure price tags are not uncommon when acquiring facilities.

Routine operating costs can also be quite expensive. You may need to staff and maintain those facilities for several years while you slowly develop a positive reputation with the local community. Hotels often count on busy seasons to offset the lower income during slower times of the year.

All too often, businesses in those early stages of development will start to struggle, especially if the economy doesn’t perform the way the owner or executive board anticipated during the planning stages. Hotels that opened in the last few years, in particular, may need to consider bankruptcy as a way to remain solvent in an economy that has been quite unforgiving.

Tourism spending still has not fully recovered

It is very difficult to estimate exactly how much tourism money people did not spend in the last few years. However, the total amount is undeniably massive. The United Nations estimated that in 2021, reduced travel and tourism spending eliminated $2 trillion in tourism revenue from the global economy.

Hotels were among the hardest hit by those changes. A drop in people making reservations and an uptick in cancellations combined with the constant need to maintain staff and facilities have put many previously lucrative hotel businesses in a precarious position.

How business bankruptcy can help

You have facilities that will eventually generate profit, and you have the talent to maintain the business. However, if you fall behind on debts, creditors can take aggressive actions against the business that may eventually result in its closure.

Bankruptcy will temporarily halt collection activity, potentially protecting hotel assets from creditors. Restructuring the debts owed by the hotel can go a long way toward keeping the operating expenses manageable until the tourism industry starts to bounce back. The discharge of certain debts could also free up revenue to pay crucial expenses, like business operating costs and staff wages.

Taking action in the form of a business bankruptcy could help you protect your hotel from closure or the loss of key company assets.