Corporate Bankruptcy Filings in US

Webpronews reports a 73% increase in corporate bankruptcies for 2025, with business bankruptcy filings reaching their highest monthly level since 2020.

At Shenwick & Associates, we have observed this increase and wish to review the various types of bankruptcy available to businesses.

Chapter 7 Bankruptcy involves the liquidation of a business by a Chapter 7 Bankruptcy Trustee. The Trustee closes the business and liquidates any assets for the benefit of creditors. However, the Chapter 7 bankruptcy trustee can also commence avoidance actions (preference and fraudulent conveyance actions) and sue the corporate debtor's shareholders if they have used business assets for personal expenses.

Chapter 11 Bankruptcy can involve reorganization or liquidation of assets by existing management. Unfortunately, Chapter 11 reorganizations require filing a plan and a disclosure statement, as well as soliciting votes to confirm a plan. This process can be extremely expensive, often prohibitively so for small businesses. A business can also use a Chapter 11 filing for liquidation by existing management.

Subchapter V Bankruptcy is a type of Chapter 11 bankruptcy filing for small businesses. The maximum debt is $3,424,000, and at least 50% of the debtor’s total debts must stem from commercial or business activities. Only small business debtors (which may include individuals or entities) may file under Subchapter V. Subchapter V is a simplified form of Chapter 11 filing; a debtor only needs to file a plan, not a plan and disclosure statement.

Chapter 13 Bankruptcy is for individuals only.

People with questions about what type of Bankruptcy to file can call Jim Shenwick, Esq

Jim Shenwick, Esq  917 363 3391  jshenwick@gmail.com 

Please click the link to schedule a telephone call with me.

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We help individuals & businesses with too much debt!

Chapter 7 Business Bankruptcy Filings in SDNY & EDNY

 

Shenwick & Associates has filed numerous bankruptcy petitions for businesses (LLCs and Corporations) in the Southern District of New York and the Eastern District of New York. We have recently observed a trend where Chapter 7 Bankruptcy Trustees are conducting a "deeper dive" into business finances to initiate avoidance actions (Preference or Fraudulent Conveyance) against business owners or third parties. 

The Bankruptcy Trustee and their counsel get compensated for bringing these transactions.

These actions are permissible under the Bankruptcy Code; however, they can be time-consuming and expensive to defend or settle.

Additionally, once a Chapter 7 bankruptcy case is filed, dismissal can be difficult. After the business files for Chapter 7 Bankruptcy, the Bankruptcy Trustee assigned to the case will request bank statements, tax returns, credit card statements, and other financial documents for the business. These will be reviewed by the Bankruptcy Trustee, their counsel, or their accountant.

Transactions which will be heavily scrutinized include but are not limited to:

1 Preference payments.  Payments or transfers made to creditors within 90 days before filing (or within one year if to an insider, such as a family member or business partner) that give one creditor more than others. The trustee can “claw back” these payments to ensure equal treatment among creditors

2 Fraudulent Conveyances Transfers of property or assets made with intent to hinder, delay, or defraud creditors, or made for less than reasonably equivalent value, typically within two years prior to filing (sometimes longer under state law). The trustee can reverse these to recover assets for the bankruptcy estate (“Sweetheart deals to 3rd parties or owner of the business and their friends or family

3 Personal expenses  of Owner of business paid by Business such as insurance, car payments, meals or vacations

4 Gifts or large transfers to friends/family: Any significant gifts or transfers of value, especially to insiders, are closely examined and can be reversed if deemed improper.

5 Sales of assets for less than fair market value: The trustee looks for any sales or transfers where the business did not receive fair value, as these may be considered fraudulent.

6 Unusual or inconsistent transactions: Any financial activity that appears out of the ordinary, such as sudden depletion of assets, hidden accounts, or unreported income, will be investigated

7 Undervalued transactions: Transfers where the debtor sold or gave away property for less than its fair market value within a set period before bankruptcy (often up to five years). For example, selling a car to a relative for a nominal amount can be voided

8 Transfers to defeat creditors: Any transfer made with the intent to hinder, delay, or defraud creditors—such as moving assets to a family member or friend to keep them out of the bankruptcy estate

9 Transactions where consideration is given to a third party: If the debtor transfers property to one person but the payment or benefit goes to someone else, this can be voided to prevent circumvention of bankruptcy rules

10 Sales or transfers of assets to insiders, officers, family members, or other businesses under common control

These are some transactions that will be scrutinized; if similar transactions occurred previously, one may reconsider a Chapter 7 bankruptcy filing.

Clients or their advisors with questions about chapter 7 business bankruptcy filings should contact Jim Shenwick, Esq  917 363 3391  jshenwick@gmail.com 

Please click the link to schedule a telephone call with me.

https://calendly.com/james-shenwick/15min

We help individuals & businesses with too much debt!

Can an LLC Member Interest Owned by a Debtor in Chapter 7 Bankruptcy be Sold by Bankruptcy Trustee?

 When we file a Chapter 7 bankruptcy petition for an individual, clients often ask which assets they will be able to keep after the bankruptcy case is closed.

Oftentimes, clients own interests in LLCs or partnerships and want to know if they will lose that interest in Chapter 7 bankruptcy.

Forbes recently published an article by Jay Adkisson titled “Can an LLC Interest Owned by a Debtor Be Sold by the Bankruptcy Trustee?” In this well-written article, Mr. Adkisson analyzes a recent case of first impression in the Eastern District of Kentucky, captioned Business Aircraft Leasing v. Ultra Energy Resources LLC (In re Addington).

The bankruptcy court held that in a Chapter 7 bankruptcy filing, a bankruptcy trustee can sell an economic right in an LLC member's interest. In the Addington case, Larry Addington filed for Chapter 11 bankruptcy, which was later converted to Chapter 7. He owned a 36% membership interest in a limited liability company called Ultra Energy Resources, LLC. 

The judge in the Addington case discusses that an LLC membership interest consists of a governance interest, which includes the right to manage the LLC, vote to admit members or dissolve the LLC, and the economic rights of an LLC, which are the rights to distributions of money or property from the LLC.

The dispute in the case was whether the creditor who purchased the LLC interest from the Chapter 7 Bankruptcy Trustee acquired governance interests or economic rights. The LLC's position was that the purchaser had simply acquired economic rights, and the bankruptcy court, in a declaratory judgment, held that the purchaser had indeed only acquired economic rights, not governance interests.

In reaching his decision, the Bankruptcy Judge analogized to a charging lien that a judgment creditor obtained on a debtor LLC member's interest. 

The Addington case is one of the first to involve the sale of a membership interest in an LLC by a Bankruptcy Trustee in a Chapter 7 proceeding.

Mr. Adkisson, in his article, notes that the managers of a closely held LLC are unlikely to admit the purchaser as a member unless they know the purchaser will be friendly. 

A few comments based on our experience:

1. If the LLC is a single-member LLC, the Bankruptcy Trustee will be able to sell the member's governance and economic interest.

2. Whether a governance or economic interest can be sold will often depend on the terms of the Operating Agreement and state LLC law.

Individuals or their advisors with questions pertaining to the sale of LLC member interests in a chapter 7 bankruptcy filing should contact Jim Shenwick, Esq.

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Jim Shenwick, Esq  917 363 3391  jshenwick@gmail.com 

Please click the link to schedule a telephone call with me.

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UPDATE OFFERS IN COMPROMISE (“OIC”) FOR SBA EIDL LOANS 04-22-2025

 OFFER IN COMPROMISE (“OIC”) FOR  SBA EIDL LOANS UPDATE

Is the SBA accepting OIC applications for SBA EIDL loans? If you search online, you'll find conflicting answers. Most results indicate no

Yesterday I (Jim Shenwick, Esq) called the SBA EIDL Customer Service and spoke with a representative who said the following:

The SBA were doing offers in compromise on a case-by-case basis on a loan-by-loan basis”.  

They would provide me with no further information and my take away from the telephone call was that under the right circumstances and the right fact pattern the SBA would consider an OIC, however the SBA is looking for full repayment of SBA EIDL loans and they would be reluctant to accept discounted or reduced payments. 

Clients or their advisors with questions about SBA EIDL loans are encouraged to contact Jim Shenwick, Esq.

Jim Shenwick, Esq  917 363 3391  jshenwick@gmail.com 

Please click the link to schedule a telephone call with me.

https://calendly.com/james-shenwick/15min

We help individuals & businesses with too much debt!

SBA ENDS THE HARDSHIP ACCOMMODATION PLAN FOR SBA EIDL LOANS

SBA ENDS THE HARDSHIP ACCOMMODATION PLAN FOR SBA EIDL LOANS

Effective March 19, 2025 the SBA has ended the Hardship Accommodation Plan (“Hardship Plan”) for SBA EIDL Loans.

The Hardship Plan allowed SBA EIDL loan borrowers to repay the SBA 10% of the loan payment due for a period of 6 months (with no default) to give the borrower breathing room to restructure or reorganize. Under the Hardship Plan, if a borrower's monthly payment was $2,000, they could pay the SBA $200 for a 6-month period. After 6 months, the payments increased to 20%, then 50%, then 70%, and finally 90% for 6-month intervals until the loan was repaid.

Under the Hardship Plan, interest continued to accrue under the original loan payment terms, causing the balance due to pay off the loan to increase during the Hardship Plan.

As we noted in a prior post, the SBA also eliminated the Offer in Compromise plan  (https://shenwick.blogspot.com/2025/03/sba-does-not-allow-eidl-loans-to-be.html) 

Fewer options now exist for the struggling SBA EIDL loan borrower.

Those options appear to be:

1 Loan modification: Borrowers can request modified payment terms or extended repayment periods or negotiated repayment plans with the SBA.

2. Hardship deferment: Borrowers experiencing economic challenges may be eligible for temporary payment deferrals.

3 Full Loan Repayment from business or personal assets, if possible.

4 Liquidation of Business Assets: Close the business or sell business assets and pay off or pay down the SBA EIDL loan with the sales proceeds. The SBA loan documents require that any business assets sold and subject to an SBA loan must be paid to the SBA at the time of sale. However, the borrower will remain liable for any deficiency owing after the paydown.

5 Refinancing your existing SBA loan with a private lender and use the loan proceeds to pay down or payoff the SBA.

6 File for bankruptcy. If the SBA EIDL loan exceeded $200,000 and an individual or entity guaranteed the loan, both the SBA borrower and guarantor may need to file for bankruptcy to discharge the SBA loan

7 Default on the SBA loan and engage in Asset Protection Planning in case of legal action by the SBA or the Treasury Offset Program. 

At Shenwick & Associates, we can be retained to review the SBA Borrower & Guarantor financial information to determine the best course of action. 

Clients or their advisers with outstanding SBA EIDL loans who have questions about what they should do can contact Jim Shenwick, Esq to discuss their situation.

Jim Shenwick, Esq  917 363 3391  jshenwick@gmail.com 

Please click the link to schedule a telephone call with me.

https://calendly.com/james-shenwick/15min

We help individuals & businesses with too much debt!

SBA DOES ALLOW EIDL LOANS TO BE COMPROMISED THROUGH AN OFFER IN COMPROMISE

 

SBA DOES ALLOW EIDL LOANS TO BE COMPROMISED THREW AN OFFER IN COMPROMISE

 

Many clients have contacted our law firm seeking assistance in settling their outstanding SBA EIDL loans through an offer in compromise (OIC).

The SBA's current position is that they do allow EIDL loans to be settled through an OIC on a case-by-case basis on a loan-by-loan basis.

The options to settle SBA loans are provided below.

0. Offer in Compromise

1. Hardship Accommodation Plan.  The hardship accommodation plan lowers monthly payments for 6 months, and then payments increase over a time.

 2. Loan modification: Borrowers can request modified payment terms or extended repayment periods or negotiated repayment plans with the SBA.

3. Hardship deferment: Borrowers experiencing economic challenges may be eligible for temporary payment deferrals.

4 Full Loan Repayment from business or personal assets, if possible.

5 Liquidation of Business Assets: Close the business or sell business assets and pay off or pay down the SBA EIDL loan with the sales proceeds. The SBA loan documents require that any business assets sold and subject to an SBA loan must be paid to the SBA at the time of sale. However, the borrower will remain liable for any deficiency owing after the paydown.

6 Refinancing your existing SBAloan with a private lender and use the loan proceeds to pay down or payoff the SBA.

7 File for bankruptcy. If the SBA EIDL loan exceeded $200,000 and an individual or entity guaranteed the loan, both the SBA borrower and guarantor may need to file for bankruptcy to discharge the SBA loan

8 Default on the SBA loan and engage in Asset Protection Planning in case of legal action by the SBA or the Treasury Offset Program. 

Clients or their advisers with outstanding SBA EIDL loans who have questions about what they should do can contact Jim Shenwick, Esq to discuss their situation.

 

Jim Shenwick/Shenwick & Associates

Jim Shenwick, Esq  917 363 3391  jshenwick@gmail.com 

Please click the link to schedule a telephone call with me.

https://calendly.com/james-shenwick/15min

We help individuals & businesses with too much debt!

How to Sell a Business Subject to an SBA EIDL Loan

Many clients have contacted our law firm asking how to sell a business subject to an SBA EIDL loan. There are two scenarios. In the first, the sales proceeds are sufficient to pay off the SBA loan (the easier scenario). In this case, one is required to contact the SBA and obtain prior approval, pursuant to SBA loan documents. In the second scenario, the sales proceeds are not sufficient to pay off the SBA loan (the more difficult and complex scenario), resulting in a shortfall ("Shortfall"). 

With respect to the Shortfall scenario, the Borrower/Seller must do the following: 1. Provide the SBA with information about the proposed sale (prior to closing), 2. Submit the required SBA documents for the sale to the SBA, 3. Send the SBA the proposed Sales Agreement, 4. Provide the SBA with a business valuation or appraisal of the business being sold, 5. Provide the SBA with financial statements for the business being sold, and 6. Provide the SBA with a proposal for handling the loan shortfall (an Offer in Compromise, payment by the Guarantor, Loan assumption by the Buyer, etc.).

The proposed Sales Agreement should include a contingency clause stating that the sale is subject to SBA approval. 

Obtaining SBA approval can take months and may require negotiations with the SBA.

Clients or their advisors having questions about the sale of a business subject to an SBA loan should contact Jim Shenwick, Esq.

Jim Shenwick, Esq  917 363 3391  jshenwick@gmail.com 

Please click the link to schedule a telephone call with me.

https://calendly.com/james-shenwick/15min

We help individuals & businesses with too much debt!

Subchapter V debt limit will increase to $3,424,000

The National Law Review reports that the Subchapter V debt limit will increase to $3,424,000 on April 1, 2025. Currently, the Subchapter V debt limit is $3,024,725. 

The full article can be found at: https://natlawreview.com/article/bankruptcy-dollar-amounts-set-rise-significantly-april-1-2025  

Clients or their advisors with questions about Subchapter V Bankruptcy should contact Jim Shenwick, Esq. 

Jim Shenwick, Esq. 

917-363-3391

jshenwick@gmail.com

Please click the link to schedule a telephone call with me: https://calendly.com/james-shenwick/15min

We help individuals and businesses with excessive debt!