• The Use of Chapter 11 to Prevent Commercial Foreclosures
  • June 15, 2010 | Authors: Laurie B. Biggs; Trawick H. Stubbs
  • Law Firms: Stubbs & Perdue, P.A. - Raleigh Office ; Stubbs & Perdue, P.A. - New Bern Office
  • Commentators have been predicting that commercial real estate loans are the next wave of defaults that will occur in this economic downturn, similar to what has already occurred with defaults on subprime loans. Commercial loan defaults have already led to a significant increase in companies filing for bankruptcy. Chapter 11 business bankruptcy filings in the third quarter of 2009 increased 23 percent over the same period in 2008.1 While legislation on the national and state level has yet to address foreclosures in the commercial context, businesses facing the threat of foreclosure should consider bankruptcy, and, in particular, a reorganization under chapter 11 of the Bankruptcy Code, as a tool to restructure their existing obligations. Chapter 11 is a powerful tool that businesses2 can use to hold off the threat of foreclosure, while addressing all of the factors affecting a business┬┐ profitability. Chapter 11 allows a debtor time to formulate a plan to return to profitability, which may include shedding unnecessary assets or modifying the terms of existing obligations. A business that is committed to working within the rules established by the Bankruptcy Code has the chance to restructure its obligations such that a fresh start can be obtained instead of simply shutting its doors.