Using Bankruptcy To Halt Eviction Against A Business

A caller late Friday asked whether a business could file bankruptcy to stop an eviction. The caller owned a small business with a few locations. Each location was owned by a separate corporation. One of the locations was doing poorly and was facing eviction within the next week. The lease was in the name of the business and personally guaranteed by the owner. The caller wanted to know if bankruptcy would stop the eviction and give the business more time to improve its operations.

A corporation can file Chapter 7 or Chapter 11. A Chapter 7 would stop the eviction, but the business would have to cease operations and its assets, if any, would be liquidated. A Chapter 11 would stop the eviction and give the business time to reorganize. However, this caller, like many small businesses, so not realize that Chapter 11 cases are complicated and very expensive. Chapter 11 generally is not appropriate for a small business which cannot afford even to pay rent.

The caller asked if he could file a personal Chapter 13 to stop the eviction. In that case, the individual owner, and not the corporation that owned the store, would be the bankruptcy debtor entitled to the benefits of the automatic stay. There is what is known as a "co-debtor" stay in Chapter 13, but the co-debtor stay applies to consumer debts. In this case, the individual’s Chapter 13 would no stay an eviction against the non-filing corporation.

posted by Jonathan Alper, bankruptcy and asset protection attorney, Orlando, Florida