Understanding Tenant Rights During Landlord Bankruptcy
When a landlord files for Chapter 11 bankruptcy, commercial tenants may be concerned about the future of their lease and their rights in the bankruptcy process. The Bankruptcy Code gives debtor landlords significant powers, such as the ability to reject, assume, or assign leases. However, tenants are also afforded special protections to help maintain stability and predictability. Knowing these rights is essential for tenants who want to protect their business operations and the value of their lease.

When a company files for bankruptcy, employees often face uncertainty about their jobs and financial security, especially regarding unpaid wages and benefits. The Bankruptcy Code provides some protections, but the process and outcomes depend on the type of bankruptcy case. In Chapter 7 cases, the company is liquidated and all employees are laid off. Employees owed wages or benefits as of the bankruptcy filing date may file claims against the company, and certain claims may be entitled to priority treatment under federal law.

When an employer files for bankruptcy, employees may wonder what happens to their employment and noncompete agreements. The Bankruptcy Code gives debtors broad authority to assume or reject contracts, which can impact an employee’s rights and future obligations. Most employment agreements are considered executory contracts, meaning the debtor can choose to honor or reject them, with important consequences for both parties.

When a bankruptcy case transitions from Chapter 11 to Chapter 7, stakeholders experience significant changes. Chapter 11 focuses on reorganization, allowing debtors to restructure their debts and operations, while Chapter 7 shifts the focus to liquidation. This conversion often occurs when a debtor’s estate becomes administratively insolvent, meaning it lacks sufficient funds to cover the costs of the bankruptcy process. Consequently, a trustee is appointed to manage and liquidate the debtor’s assets, aiming to pay off creditors as much as possible.

Navigating Consignment Rights Before Bankruptcy

Consignment arrangements can be complex, especially when a consignor seeks to protect their interests before a bankruptcy filing. Under the Uniform Commercial Code (UCC), consignors must follow specific procedures to perfect their security interest in consigned goods, elevating their status from unsecured to secured creditors. This process involves filing a UCC financing statement and providing a Purchase Money Security Interest (PMSI) notice to ensure priority over other creditors. Failure to perfect these interests can result in losing priority to the consignee’s creditors or a bankruptcy trustee.

Chapter 11 bankruptcy, known as “reorganization bankruptcy,” is a critical process for preserving a debtor’s business value. This blog explores the life cycle of a Chapter 11 case, emphasizing the importance for creditors and other stakeholders to understand the stages and their potential impact on financial interests. Part II of this series delves into the middle and final stages, including plan confirmation and post-plan administration.

Chapter 11 bankruptcy, known as “reorganization bankruptcy,” is a process aimed at preserving a debtor’s business value. It unfolds in five stages, with Part I focusing on prepetition planning and the initial filing. These stages lay the groundwork for the proceedings and influence the debtor’s ability to reorganize effectively.