For Creditors, Chapter 11 Often Can Have a Devastating Ending

Regarding the July 26 story, “Big Business Sees Chapter 11 Shield as a Potent Tool”:

Chapter 11 bankruptcy is obviously great for debtors because it gives them time to reorganize without having to pay off creditors. Chapter 11 is even greater for attorneys, as they get rich with very little investment. But what about the creditor? Is Chapter 11 fair to the creditor? Perhaps my experience will provide some enlightenment.

I am a relatively small investor in real estate (under $5 million in assets). Four of my major tenants have filed for Chapter 11 within the last five years. The results: The court stayed the rent due me from the debtor, but would not stay my loan payments, property tax or insurance. Therefore, I faced my expenses with zero income.

One Chapter 11 debtor leased a 30,000-square-foot building from me for about $11,000 per month. My loan payments were about $6,500 per month. In less than two years, the tenant filed for Chapter 11. I went through four lawyers before finding one who knew what to do. The judge retired in the middle of the proceedings, so everything was delayed until a new judge was appointed. But at the beginning, a trustee was appointed for the case, and for more than two years, I could neither gain possession of my property nor collect rent. My expenses, of course, continued.

Finally, I regained possession of the property, but first I had to pay $30,000 to the bankruptcy trustee, assume a $126,000 bank debtor note and cover $15,000 in attorney fees, $55,000 in back property taxes and $40,000 in repairs. After about two years, this new tenant filed Chapter 11 and is now more than $50,000 in arrears on rent.

As a result of another Chapter 11 case, I went through foreclosure and lost more than $100,000.

One can only conclude that Chapter 11 is often devastating to the creditor. I believe that changes in Chapter 11 bankruptcy laws are in order.

GLENN BUCHANAN

Sherman Oaks