- September 17, 2024
- Kelvin Birk
- Bankruptcy
The COVID epidemic and the high inflation of its aftermath has had devastating effects for the restaurant business, and many Missouri restaurants are still trying to recover. If you own a restaurant that is struggling with overwhelming debt but you still want to remain in business and believe you have a viable path to profitability, you might benefit from a Chapter 11 bankruptcy.
While no one wants to have to declare bankruptcy, in many situations it is your best option for returning to profitability and rebuilding for the future. However, filing Chapter 11 is complicated, and making mistakes can be costly, so it is not something you should attempt on your own. It can help to consult with an experienced Missouri business bankruptcy attorney who can analyze your restaurant’s financial situation, determine if Chapter 11 reorganization is your best option, and guide you through the process to ensure you come out better in the end.
Understanding Chapter 11 Bankruptcy for Restaurants
Chapter 11 of the United States Bankruptcy Code is the most common type of bankruptcy for partnerships, sole proprietors, and corporations that have significant assets in the business and can come up with a viable repayment plan. This plan is a contract between the debtor and the creditors outlining how the business will operate and pay its debts in the future.
Chapter 11 allows a restaurant owner to remain in control of the business, continue to operate the business and, with court approval, borrow new money. Under Chapter 11, you propose a plan of reorganization that you can manage; creditors whose rights are affected vote to approve the plan; and then it may be confirmed by the court as long as it satisfies certain legal requirements.
Benefits of Chapter 11 Bankruptcy for Missouri Restaurants
There are multiple reasons for a restaurant to file Chapter 11 bankruptcy. Some of the main benefits include:
- You continue operating and keep control of your restaurant, which stays open during the process.
- You can reorganize your finances and negotiate with creditors to come up with a repayment arrangement you can manage so you can become profitable again.
- Chapter 11 provides an “automatic stay” so creditors must cease all litigation and stop taking any action to collect their debts during the process. All litigation is put on hold, including foreclosure on a mortgage or Uniform Commercial Code (UCC) sale of business assets. This gives the restaurant breathing room to propose a reorganization plan without creditor harassment.
- You are provided the ability to reject unfavorable contracts like leases or rental agreements so you can close locations and get relief from above-market rent. You can also sell assets such as real estate, machinery and equipment, vehicles, and even intellectual property free and clear of liens and claims.
- You are allowed to borrow new money through a debtor-in-possession or DIP loan, which gives the lender a super-priority lien, putting them ahead of the business’s existing lenders.
- You are given the chance to renegotiate terms of collective bargaining agreements in good faith.
Considerations for Missouri Restaurants Filing Chapter 11
While Chapter 11 has many advantages, it can be costly, and it requires careful legal guidance to navigate the complex restructuring process successfully. Here are some considerations before proceeding with Chapter 11:
- You must be able to come up with and propose a detailed repayment plan that is approved by creditors and the bankruptcy court. This may involve lengthy negotiations and legal proceedings.
- Because Chapter 11 is generally more complex and costly than Chapter 7 bankruptcy (which involves liquidation of your restaurant and its assets), it has costs that include paying attorney’s fees, accountant’s fees, and court costs over an extended period.
- The restaurant must provide regular financial disclosures and updates to the court on progress in meeting the repayment obligations, and failure to adhere to the plan can result in liquidation under Chapter 7.
- You must be current on filing state tax returns for the past four years, as the state can object to the bankruptcy case and seek dismissal if returns are missing.
Chapter 11 is usually preferable to Chapter 7 if you believe the restaurant can eventually become profitable again after restructuring debts, but you must carefully evaluate long-term viability and be able to adhere to court-approved repayment plans.
Alternatives to Chapter 11 Bankruptcy for Missouri Restaurants
Chapter 11 is not necessarily the answer for every restaurant, and other options should be discussed with an experienced bankruptcy attorney. These may include:
Fiing for Chapter 7 Bankruptcy — If you file under Chapter 7, and you have equity in your assets, you must close your restaurant and have its assets sold by a Bankruptcy Trustee who will distribute the proceeds to creditors. For business entities, the unpaid balance of debt remains due and payable after the bankruptcy. If your restaurant is an LLC or corporation, a business bankruptcy under Chapter 7 or 11 should not affect your personal credit, unless you signed a personal guarantee for a debt.
Debt Negotiation — Restaurant owners and their attorneys can attempt to negotiate directly with creditors to restructure payment terms, reduce interest rates, or settle debts for a lesser amount.
Debt Consolidation Loans — This involves taking out a new loan to pay off multiple existing debts. If you can qualify and manage payments, debt consolidation can potentially reduce interest costs, and it may also be easier to pay off one loan than to make multiple payments. However, qualifying for such loans with poor finances may be difficult.
Selling Assets — You may be able to raise needed funds by selling off equipment, furniture, real estate or other assets, and operating on a smaller scale.
Making Operational Changes — You may be able to improve your financial situation by changes such as renegotiating leases, reducing staff, or changing menus.
The Role of a Missouri Bankruptcy Attorney for Restaurants
While Chapter 11 is expensive, it can provide valuable benefits and eliminate unmanageable dets, and an experienced Missouri bankruptcy attorney can help you determine if it is right for you. Your attorney will carefully analyze your restaurant’s financial situation, assets, liabilities, cash flow, and prospects for profitability. If Chapter 11 reorganization is a viable option, your attorney will:
- Gather financial documentation and prepare the necessary bankruptcy petition, schedules, statements, and reorganization plan for filing with the bankruptcy court
- Provide advice on strategies such as negotiating with creditors, renegotiating leases or contracts, selling non-essential assets, downsizing operations, or obtaining post-petition financing
- Represent the restaurant at all court hearings, meetings with creditors, and negotiations with parties like landlords, lenders, suppliers
- Come up with a viable reorganization plan that restructures debts, scales operations, and charts a path for the restaurant to become profitable again
- Ensure restaurant compliance with all bankruptcy rules, procedures, and reporting requirements throughout the Chapter 11 process.
If you are even considering filing for bankruptcy, a consultation with an experienced Missouri bankruptcy attorney who can assess your specific circumstances can help you make the important decision as to what is the best option for your restaurant.
Attorney Kelvin Birk is a Certified Public Accountant as well as a lawyer, with more than 30 years of experience in accounting and tax and business consulting, and this dual background gives him the essential knowledge to guide you through your financial problems. At the Birk Law Firm, we are here to help you navigate the Chapter 11 bankruptcy process, so that you can decrease financial risks and increase the chances of recovery for your restaurant.
Call us today for a free consultation to discuss your individual situation and get started on the road to a brighter financial future.
FREE CONSULT CALL NOW 573-332-8585
Attorney Kelvin Birk
Kelvin Birk is a lawyer as well as a certified public accountant, with more than 30 years of experience in accounting and tax and business consulting, and more than 20 years of experience in numerous legal matters. This combined expertise allows our law firm to provide a level of service above that of other firms. Whatever your legal situation, your attorney at Birk Law Firm can counsel you as to the tax implications. We have experience in providing myriad legal representation services to residents of southeast Missouri and other areas.. [ Attorney Bio ]
