Friday, August 12, 2016

Restaurant chains can file for bankruptcy if they borrow too much money--but the bankruptcy courts are virtually closed to distressed student-loan debtors

A least four large restaurant chains have filed for bankruptcy this year--a sign perhaps that the economy is slipping back into recession. Companies that own Logan's Road House, Fox & Hound, and Johnny Carino's are among the casualties.

Craig Weichmann, an investment consultant who specializes in restaurants, said the bankrupt restaurant chains were burdened by high debt loads and lagging same-store sales.  Restaurant chains took advantage of low interest rates to borrow a lot of money, but older restaurants are losing customers to new chains. Now the old chains can't manage their debt.

But, hey, bankruptcy can be a good thing for businesses that borrow too much money.  “In [the] old days, filing for bankruptcy was the end of the world," Weichmann explained.  "In reality, there comes a time when filing for bankruptcy permits a group to come out sustainable and healthy.” In fact, Weichman said, a lot of companies come out of bankruptcy "with a new life.”

Is this a great country or what? Business owners who borrow money recklessly while paying themselves fat salaries can stiff their creditors by filing for bankruptcy without changing their lifestyles at all.

In fact, restaurant owners can file for bankruptcy repeatedly. John Carino's owners filed for bankruptcy a second time only three months after emerging from an earlier bankruptcy.    According to the Austin Business Journal, the company owed $19 million to its creditors and roughly $905,000 in back wages, vacation time and bonuses to its employees, plus back taxes and lease obligations."

Yes, America is truly a great country--unless you are a student-loan debtor.

Although some bankruptcy respond humanely when destitute student-loan debtors file for bankruptcy, other courts give them a chilly reception. Even college borrowers who received no benefit from their college experiences and can't land a decent job often find it very difficult to discharge their student loans in bankruptcy.

Remember Brenda Butler, whose bankruptcy case was decided earlier this year? She borrowed a modest amount of money to get a degree from Chapman College (a reputable institution), and she made good faith efforts to pay off her loans for almost 20 years. But a bankruptcy court in Illinois refused to discharge her student loan debt, which had more than doubled in size since she graduated, and forced to her to remain in an income-based repayment plan that obligates her to make loan payments until 2037!

Poor Ms. Butler. Instead of going to college, she should have borrowed money to start a restaurant.

References

Butler v. Educational Credit Management Corporation (In re Butler), Adv. No. 124-07069, 2016 WL 360697 (Bankr. C.D. Ill. Jan. 27, 2016). Available at  http://www.leagle.com/decision/In%20BCO%2020160127751/IN%20RE%20BUTLER

Korri Kezar. Why a Dallas restaurant company's bankruptcy is part of a trend. WFAA.com. August 10, 2016. Available at http://www.wfaa.com/news/local/dallas-county/why-a-dallas-restaurant-companys-bankruptcy-is-part-of-a-trend/293988701?utm_campaign=Daily%2BBankruptcy%2B%26%2BRestructuring%2BNews%2Bfrom%2BChapter11Dockets.com&utm_medium=email&utm_source=Daily_Bankruptcy_%26_Restructuring_News_from_Chapter11Dockets.com_24

Michael Theis. Italian restaurant chain again files for bankruptcy. Austin Business Journal, July 27, 2016. Available at http://www.bizjournals.com/austin/news/2016/07/27/italian-restaurant-chain-files-again-for.html

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