Hi My name is Brian Mahany, I am the founder and principal of MahanyLaw, a national boutique law firm that represents commercial borrowers.
Today we are discussing bankruptcy. Many businesses facing financial hardship come to us for bankruptcy advice. There is a popular myth that says when in trouble, the best way to buy time and avoid the loss of one’s business is to file bankruptcy.
Compounding this myth is the proliferation of bankruptcy lawyers that market themselves as “foreclosure defense” specialists.
Although bankruptcy may gain you some time, you frequently don’t gain any leverage over the bank. In fact, banks have a tremendous amount of experience in bankruptcy court and often have the upper hand.
There is no one size fits all answer as to how to approach banks when your business is in trouble. That includes bankruptcy.
Most business bankruptcies are chapter 7 liquidations. Your business is sold, assets collected and the proceeds distributed to creditors in accordance with a complex hierarchy established by the bankruptcy code. If the lender does not get paid in full and you signed a personal guaranty, you could be on the hook for any deficiency.
Chapter 11 bankruptcy filings allow the business to reorganize. Very few lawyers understand or know how to file a Chapter 11 business reorganization plan, however. Most bankruptcy lawyers don’t know even know how to do so. More importantly, when you file for Chapter 11 protection, you need to have a viable plan to reorganize. If you don’t, the bankruptcy will quickly be converted to a liquidation.
The bottom line? Bankruptcy isn’t always the answer and can sometimes make things worse. For example, in a bankruptcy you could lose control of claims you may have against your bank.
If you are a commercial borrower and find yourself in trouble with a bank, call us. We have been helping folks just like you for over 30 years. Our lender liability lawyers will help you chart the best course. Whether that means bankruptcy, negotiation or suing your bank, we can help.