Friday, February 24, 2012

What happens to restaurants in debt that close?

I've been watching Kitchen Nightmares a lot. All the restaurants are in debt and most of them ended up closing after the show was filmed. If you Google them, you'll see that a lot of them closed. What happens to the debt? Do the former owners still have to pay it off or do they have to file for bankruptcy? Some of them say they are a million dollars in debt. What typically happens?What happens to restaurants in debt that close?
Typically businesses with unrepayable debts will file a Ch 7 bankruptcy. This will liquidate the business assets to repay creditors and (by definition) put the business out of business.



Many times, particularly with relatively new businesses, the business owner has personally guaranteed some or all business loans. In this case, the business owner may need to file a consumer bankruptcy case as well.
Restaurant equipment is usually pledged against the loan and sold. Sometime the lease rights as well. Very high failure rate in that business so the banks usually work to protect themselves. Often time co-signers and angel investors lose it all.What happens to restaurants in debt that close?
Most are corporations so the people who loaned the money are out of luck. They sell the assets and split the cash among all of the creditors. The corporation owes the money not the individuals in most cases.

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