Fort Lauderdale Secured Debt Attorneys
Experienced Attorneys Assisting Businesses
Bankruptcy does not have to be synonymous with business failure. When a company has encountered financial trouble and needs a fresh start, bankruptcy can sometimes be used as a tool to achieve that result. The attorneys at Stok Kon + Braverman can assist businesses with handling the intricacies of these proceedings, including management of secured debt.
Bankruptcy & Secured Debt
A secured debt is a debt that is backed by some form of collateral. The collateral is usually either real or personal property, such as a car or a house. If the debtor defaults on the loan, the creditor will generally seize the collateral, sell it, and use the proceeds to pay down the amount still owed by the debtor.
Secured Debt Surrendered
When a business files for Chapter 7 bankruptcy, there are a few different options regarding disposing of the business’ secured debt. First, the business’ debts can be surrendered. This means that whatever collateral that was being used to back the debt is taken from the debtor and the company no longer has possession or control over it. The bankruptcy trustee then auctions off the collateral and uses the proceeds from the auction to pay down the debt that was owed to the creditor.
Secured Debt Reaffirmed
A second outcome for secured debt is that the debt is reaffirmed. This means the debt survives the bankruptcy proceedings and the debtor still pays on the property just as it did before filing for bankruptcy. However, with a reaffirmed secured debt, if the debtor should default on payment of the loan, the creditor can seize that piece of property and sell it for proceeds to go toward repayment of the debt. Additionally, if the proceeds from the sale of the collateral are less than the amount that the debtor owes to the creditor, the debtor would still be responsible for paying the difference. To reaffirm a debt, a debtor must state so in writing and file a notice of reaffirmation with bankruptcy court.
A third option for secured debt under Chapter 7 bankruptcy is redemption of the debt. To redeem property being used as collateral on a secured debt, the debtor must pay the creditor the current market value of the collateral in a lump sum payment, usually in cash, and the debt would be settled. The debtor would then own the property, free and clear. If the current market value of the collateral was less than the amount the debtor owed to the creditor, that amount would be forgiven, and the debtor would not be responsible for the difference. This treatment of secured debt is one of the main benefits of a Chapter 11 bankruptcy filing. Redemption allows a company to gain better financial footing by getting rid of debt and becoming the owner of the property being used as collateral.
Additionally, if a business owns real estate and files for Chapter 11 bankruptcy, the business will be allowed to redeem the mortgage. If the money owed on a mortgage is more than the actual value of the property, then under Chapter 11, the business would only be responsible for paying back the actual value of that property. When redeeming mortgages under Chapter 11, businesses also have the opportunity to extend the duration of repayment, and many times at a lower interest rate.
Bankruptcy can be a daunting process for a business, but it does not have to be. Serving Broward County and the surrounding areas, the lawyers at Stok Kon + Braverman can guide both creditors and debtors through the bankruptcy process. Additionally, our economic background as business planning professionals gives us useful insights and allows us to try to resolve matters as efficiently as possible.