Can Chapter 11 Save Your Business from Foreclosure?

attorney holding chapter 11 bankruptcy paperworkattorney holding chapter 11 bankruptcy paperwork

Recently, a Florida lender was going to foreclose on Don Ramon’s, a SoMa destination that has been extremely popular for decades. Fortunately, for the politicos and locals that loved frequenting the hot spot, it will remain open after the owner filed Chapter 11 bankruptcy. The story is not an uncommon one, particularly during the pandemic, which is causing so many businesses to permanently close their doors. So, if you have a business and are considering Chapter 11 bankruptcy, can it protect you against foreclosure? The answer is yes, but it can also help individuals who are in fear of foreclosure, as well.

What Is Chapter 11 Bankruptcy?

Historically, it was once true that only big businesses and large corporations could afford a Chapter 11 bankruptcy due to the high costs involved. Fortunately, that is not the case today, and a Chapter 11 bankruptcy is now a viable option for small and large businesses alike. Chapter 11 bankruptcy is used by businesses when they are struggling financially, usually due to a temporary downturn in business. Chapter 11 bankruptcy holds many benefits for business owners. Mainly, it provides an opportunity for businesses to reorganize and develop a strategy for moving forward.

Regardless of whether a business is trying to avoid debt collections from vendors, cannot make their rent or mortgage payments, or cannot pay their employees, Chapter 11 is an option that can help businesses get back on track.

Chapter 11 Requires a Payment Plan

Many people think that when they file for bankruptcy and are successful with their case, they are no longer liable for paying their debts because these debts are discharged during the process; however, while this is a possibility with other types of bankruptcies, such as Chapter 7, it is not possible with a Chapter 11 bankruptcy. During a Chapter 11 bankruptcy, you can retain your business and home, but you must also enter into a repayment plan that deals with your unsecured debts. The payments you make towards your debt are paid to the bankruptcy trustee, who then forwards them to the creditors you owe the debt to.

It is easy to assume that because you will have to repay your debts, Chapter 11 is not right for you. However, when developing the repayment plan, the bankruptcy trustee will ensure the plan is affordable for you.

How Chapter 11 Affects Foreclosures

As in a Chapter 13 bankruptcy, which also involves a reorganization of debt and a repayment plan, a Chapter 11 bankruptcy can help you save your business from foreclosure. To save your business from foreclosure, you must have more than $1,257,850 in secured debt or over $419,275 in unsecured debt (as of 2019). If you do not meet these requirements, you may be able to file a Chapter 13 bankruptcy instead.

However, contrary to popular belief, Chapter 11 is not reserved for businesses only. Homeowners who meet the minimum requirements are also often eligible to file Chapter 11 bankruptcy. People who have the significant amounts of debts required for Chapter 11 often do not qualify for Chapter 13, so having both options is beneficial for anyone who is struggling with debt.

Cramming Down or Removing Liens with Chapter 11 Bankruptcy

While a Chapter 11 bankruptcy can allow you to avoid foreclosure and reorganize your debts, there are other benefits that come with this type of bankruptcy as well. One of these is the possibility of removing liens from your property, or cramming down liens.

A lien is placed on property when a creditor has a legal right or claim to the property. Liens are commonly placed on property by banks and credit unions in order to collect what is owed to them. Construction liens are also sometimes placed on properties when a contractor has performed work or provided materials to the property and they have not been properly paid for the work or materials. Liens are typically only removed once the home or business owner has paid the debt in full, but they can also be removed or “crammed down” in a Chapter 11 bankruptcy.

Cramming down liens refers to when the balance left on the mortgage is greater than the market value of the property. Cramming down a lien means reducing it down to the current market value. Junior mortgages, including HELOCs, HOA liens, tax liens, and judgment liens can all be crammed down in a Chapter 11 bankruptcy. Again, with some liens, you may not be able to completely remove a lien and not just cram it down, which can be greatly beneficial.

Is Chapter 11 Bankruptcy Right for You?

It is always difficult to determine whether filing for bankruptcy is the right option for your circumstances. This is particularly true when you are considering filing Chapter 11 bankruptcy, which has certain requirements and criteria. However, in some cases, it may be the only possible way to reorganize your debts and keep your business. Most small businesses do not file Chapter 7 bankruptcy because it will close most companies and because most companies are not entitled to a debt discharge.

Businesses also cannot file Chapter 13 bankruptcy although in some cases, stakeholders may file Chapter 13 individually if restructuring their personal finances provides enough relief financially to keep the business afloat. Still, in most cases when a business is looking to avoid foreclosure or to restructure its debts, a Chapter 11 bankruptcy is usually appropriate.

Our Florida Foreclosure Defense Lawyers Can Help Save Your Business

During the COVI-19 pandemic, too many businesses have fallen into financial hardship, with some even having to close their doors permanently. If your business is in trouble, our foreclosure defense lawyers in Fort Lauderdale can help you avoid foreclosure so you can get your company back on track. At Loan Lawyers, we will advise on whether Chapter 11 bankruptcy is right for you, and advise you of your other options that can help. Call us today at 954-523-4357 or fill out our online form to schedule a free consultation so we can review your case.

Loan Lawyers has helped over 5,000 South Florida homeowners and consumers with their debt problems, we have saved over 2,000 homes from foreclosure, eliminated more than $100,000,000 in mortgage principal and consumer debt, and have recovered over $10,000,000 on behalf of our clients due to bank, loan servicer, and debt collector violations. Contact us for a free consultation to see how we may be able to help you.