Genetic Testing Company 23AndMe Expected To Declare Bankruptcy

There are certain types of companies that you almost expect to go under with the economy’s current state. Brick-and-mortar retailers and fast casual restaurants seem to be dropping left and right. But a well-known company in the biotech sector now appears to be on the brink of collapse, and experts predict that it will soon file for bankruptcy. This isn’t just a chilling indicator of how the American economy is doing. Millions of customers have trusted their most personal information- their DNA- with 23AndMe over the years. And if 23AndMe is required to sell its assets due to a bankruptcy filing, customer information could be sold to advertisers and researchers.

Millions of people have used 23AndMe’s services over the years, with a valuation of $3.5 billion when the company went public in 2021. But by 2023, the company reported a net loss of over $300 million, and its shared fell below $1. In October 2023, the company was rocked by scandal when hackers gained access to almost 7 million customers’ private information. Upon first reading, it may seem like the information obtained from 23AndMe’s genetic tests should be protected by HIPAA, or the Health Insurance Portability and Accountability Act. This law protects the privacy of medical patients’ health data, which can be used by major corporations for a variety of purposes. However, 23AndMe is considered a direct-to-consumer company rather than a traditional healthcare provider. That means that HIPAA doesn’t protect the data that 23AndMe has collected from its customers over the years. So if you’ve done a 23AndMe test in the past and start seeing advertisements that seem eerily perfect for you, it may not be a coincidence. 23AndMe’s user agreement gives the company the right to retain its customers’ information for “as long as necessary.”

Rumors of 23AndMe’s downfall have been swirling for months, as the company began laying off employees last year. In September 2024, it shut down its internal research group, only contributing more to suspicions of an imminent bankruptcy. Some blame the company’s struggles on the fact that it is a one-time service. While 23AndMe has offered a subscription-based model in the past, most people simply want the results of their DNA test and to be done with the company. However, it also issued an announcement last month that it would be offering a subscription service of semaglutide injections. This is the active ingredient in medications like Wegovy and Ozempic which are becoming increasingly common weight loss treatments. In October 2024, all seven of 23AndMe’s independent directors resigned from the board. They blamed the exit on CEO Ann Wojcicki’s business strategies and work towards making the company private. This kind of mass exodus can be devastating to a company that is already floundering. Many expect that 23AndMe will soon declare bankruptcy.

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Bankruptcy For 23AndMe Versus An Average Debtor

Despite never being a profitable company, 23AndMe once held a high valuation and was considered a leader in genetic testing. Corporations like 23AndMe are ineligible for chapter 13 bankruptcy, which is the second most common form of personal bankruptcy. The first most common, chapter 7, can also be used by businesses struggling with debt. Businesses (and under some rare and limited circumstances, individuals) can also use chapter 11 bankruptcy to address debt issues. If 23AndMe files for bankruptcy, it will most likely be a chapter 11 case. Chapter 7 requires a corporate debtor to close its business, and can be infeasible for companies with complex debt structures. Most of the time, when you hear of a company declaring bankruptcy in the news, it is a chapter 11 bankruptcy filing. Chapter 11 bankruptcy creates an opportunity for the company to stay in operation.

How does a business get to avoid financial responsibilities yet stay running with a chapter 11 bankruptcy filing? Upon filing for bankruptcy, a business, or any other type of debtor, becomes protected from creditors by the automatic stay. One of the most useful protections from the automatic stay is that it freezes lawsuits and prevents creditors from filing new ones while the bankruptcy is in good standing. This is usually one of the first steps that a creditor will take to collect an unpaid debt. It can be a huge distraction and drain of resources if a company is already struggling to stay afloat. It can also stop creditor actions like repossessions, which make it more difficult for a company to continue conducting business in order to earn income and pay their debts. The protections from the automatic stay can be crucial to a company’s ability to survive a bankruptcy case.

Once under the shield provided by the automatic stay, the chapter 11 bankruptcy debtor can make proposals to a committee of its creditors on how it can emerge from debt. This could be converting debt into equity, downsizing the business, selling assets, shifting business strategies, finding new investors, or finding a buyer for the company. There is no set path for a business to follow if it files for chapter 11 bankruptcy. The committee will vote to approve or deny any proposals made by the debtor. If the committee denies a proposal by the debtor, they can also come up with and submit a proposal to rid the company of its debt.

As one can imagine, it can take quite a while to get the debtor and committee to reach an agreement, and would generate more significant legal fees the longer it takes. There are special provisions available for small business chapter 11 bankruptcy debtors that take away the requirement that a creditor committee be formed. The company generally must have less than $7.5 million in debt to qualify as a small business for chapter 11 bankruptcy purposes.

Chapter 7 For Small Businesses

Filing for chapter 11 bankruptcy is often beyond the needs (and means) of small business owners looking for a clean slate. Chapter 7 can be used to discharge unsecured debts and allow the business owner to open a similar venture, if they wish. If the business assets are covered by bankruptcy exemptions or easy to replace, the debtor can open up a new business after closing their first one through chapter 7 bankruptcy. The bankruptcy can clear credit cards, personal loans, and other unsecured nonpriority debts, as well as personal debts- the most common in the United States being medical bills.

Chapter 7 bankruptcy is much more uniform than chapter 11 bankruptcy. It is typically completed within 6 months, but cases are often discharged in as few as 3 months. A trustee is assigned to each case and will inform the debtor of any additional information that is needed. The debtor will attend a 341 Meeting of Creditors, which is generally held 4-6 weeks after filing. Creditors can attend the hearing or have 60 days after the hearing to object to their debts being discharged. Debtors must meet certain requirements to qualify for chapter 7 bankruptcy, with income being the most common factor causing ineligibility.

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The failure of big companies like 23AndMe just go to show that anyone can end up filing for bankruptcy. Whether you own your own business or earn your living some other way, bankruptcy can address debts and keep creditors at bay. Our Phoenix and Tucson bankruptcy team has represented clients just like you and can present you with reasonable expectations about your potential filing. We also understand just how difficult it can be to pay for bankruptcy while dealing with debt, so you can also check to see if you qualify for our zero down payment plan option. To get started today for free with your consultation, call 480-470-1504.