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socrateaser
socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 37968
Experience:  Attorney and Real Estate Broker -- Retired (mostly)
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My printing company is an S Corp and we have been in business

Customer Question

My printing company is an "S" Corp and we have been in business for 25 years. 18 months ago, I bought a printing press. The cost was $500,000. The monthly payments are $10,000. Almost the day we got the press, our company sales went way down and we started to loss money. At the beginning of last year, we negotiated six months of interest only payments from the company that is leasing the press to us. This helped us but, was not quite enough.

The good news is that our sales have grown each month. Our sales are at an all time high. We are close to breaking even and paying ourselves. We guess we are 6-9 months from Sustainability.

The problem is that we are almost out of money now. We are requesting another six months of interest only payment. The leasing company is saying "NO".

I guess the question is how do we keep from losing our press?? Will Chapter 11 allow us to force the leasing company to re-negotiate? Will it allow us to stay in business? If the leasing company wants to rep
Submitted: 7 years ago.
Category: Bankruptcy Law
Expert:  socrateaser replied 7 years ago.

Hi,

 

If the lessor has a UCC1 statement filed with the State and the lease contract permits the lessor to repossess the equipment upon payment default, then it is legally possible for the lessor to repossess without legal action. The caveat is that any repossession must be accomplished without causing a "breach of the peace," which basically means that if there is a confrontation between lessor and lessee, and law enforcement is called, then everyone gets arrested and the repossession is terminated.

 

For this reason, most equiplment repossession include a "claim and delivery" lawsuit where the lessor proves the right to the equipment, and the court orders the sheriff to repossess or disable the equipment until the main lawsuit for breach of lease is finished, and a final judgment for possession of the equipment is entered by the court.

 

Thus, the answer here is "yes," but dependent upon a lot of unknowns.

 

Re Chapter 11, you can reduce your payments to unsecured creditors in order to make your payments to the lessor, so this can help your cash flow issues. The risk is that the unsecured creditors refuse to to any further business with you -- so, for example, a printing press isn't worth a heck of a lot if you can't purchase paper or ink. But, most creditors want to make the Chapter 11 work, because if it doesn't then the unsecured creditors get nothing -- so, generally, the Chapter 11 may help your circumstance.

 

Except for one thing...Chapter 11 is expensive. The administrative fees can easily run $25,000 per year. So, you may not be able to afford the expense, in which case, your only other option is to try to negotiate with your unsecured creditors so that you can maintain the lease payments.

 

However, you may want to sit down with a local business bankruptcy attorney and discuss the costs of Chapter 11, before you write it off your list of possibilities. For a referral, see: http://www.abanet.org/legalservices/lris/directory/main.cfm?id=CA and www.martindale.com. Most bankruptcy lawyers only do consumer bankruptcies, so make sure that whomever you talk to has experience with Chapter 11, because it's a totally different bag-o-worms.

 

Hope this helps.

 

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Customer: replied 7 years ago.
Thank you for this answer. I can easily accept it.

I am so close to making it. The 6 months of interest only payments I am requesting will give us about $40,000 - just enough. If it costs 25,000/year to administer chapter 11 would erase any gain.

Just so I am clear, there is no legal way (other than chapter 11) that would be an effective way to force them to renegotiate the lease?

Thanks Again,

Jeff Weston
Expert:  socrateaser replied 7 years ago.

There may be something in the lease contract itself that would permit you to renegotiate, but without reading the entire thing, I couldn't do more than speculate. Chapter 11 is pretty much the only way to force the lessor to come to the table. Of course, notice of Chapter 11 might give you some negotiating leverage, but I wouldn't give the lessor any warning of your potential insolvency, unless you were current on the lease, because the lessor may try to strike first before you file Chapter 11, and repossess the equipment.

 

I wish you the best.