[Case Study] Eliminating 90% of Business Debt with Subchapter 5 Bankruptcy
E.J. Simonsen | Apr 11, 2022
Chapter 11, Subchapter 5 bankruptcy is a relatively new bankruptcy option available to small businesses. While this type of bankruptcy can help small businesses restructure debt and become profitable again, too many business owners feel that bankruptcy is an option to be avoided at all costs.
No business owner is eager to file for bankruptcy. But, if your small business is struggling with overwhelming debt, it's important to know that this option is available to you. Subchapter 5 provides a streamlined option to wipe away debt and reorganize your business for profitability.
To help small businesses in Texas understand how this bankruptcy option works, take a look at this case study. Here, we're outlining exactly how The Lane Law Firm helped one West Texas small business wipe away 90% of its debt using Subchapter 5.
Bolt Diesel is a semi-truck and trailer service business owned by Michael Rayos in Pecos, Texas. As a specialized, skilled mechanic, Mr. Rayos had built his business by rebuilding motors for large transport vehicles. Unfortunately, due to personal hardship, challenges specific to his industry, and additional hardships outside of Mr. Rayos's control — the COVID-19 pandemic in particular — Bolt Diesel was accruing a large amount of debt. When Mr. Rayos turned to The Lane Law Firm, Bolt Diesel had accrued $362,358.86 in total debt.
This case study will outline how that debt started, and how we were able to wipe away 90% of it with a multi-faceted approach to Bolt Diesel's situation.
Trying to Remain Profitable In the Face of a Payment-Last Industry & Unscrupulous Lenders Who Prey on Owner-Operators
The initial challenge that Bolt Diesel faced was the nature of its industry. The semi-truck and trailer service industry functions on a service-first, payment-last model. This means that service companies are responsible for bearing the financial burden of parts costs and labor until the job is complete, and the invoice can be paid. This contributes to cash flow concerns for any business, let alone one that has already been targeted by unscrupulous lenders.
Despite these challenges, Mr. Rayos was working hard to build Bolt Diesel. To combat the upfront costs, the business had taken out loans to make payroll and purchase parts. Unfortunately, like so many owner-operated businesses in Texas, Mr. Rayos was approached by shady business advisors and predatory lenders, who were convincing him to sign high-interest loans the business would never have time to pay back, rather than providing legitimate business advice.
Due to the poor advice of these predatory lenders, Bolt Diesel eventually did not have the cash flow to float their services before clients could pay. The business was actually forced to turn away work. There were several opportunities where, if not for the lack of cash flow, Bolt Diesel could have made lucrative partnerships with municipal transportation departments for service and repair. But, because of this crippling debt, the business was sinking.
In the midst of all these financial struggles, Mr. Rayos was hit with several significant family illnesses and losses, compounding the stress of his business's financial struggles.
Chapter 11, Subchapter 5 Bankruptcy Combined With a Strategic Business Financing Plan
When Mr. Rayos saw that these debts were keeping Bolt Diesel from taking on new business, and because he was constantly being harassed by multiple merchant cash advance creditors, he knew it was time to find a way out. He came to The Lane Law Firm.
We were able to immediately connect with him and work to understand his business's position, needs, and timelines. With a better understanding of the business, we knew that for Bolt Diesel, a Chapter 11, Subchapter 5 bankruptcy would be the best option.
While every business requires a different debt relief solution, in the case of Bolt Diesel, Chapter 11 offered a more holistic solution that could combine business restructuring, debt settlement, and more.
Choosing this type of bankruptcy gave us a strong starting point to getting Bolt Diesel back on its feet. While our attorneys worked to put that solution in motion, we also recommended a short-term contract CFO, Bob Wells with B2B CFO, to help Mr. Rayos get his financial reports in order for the filing and identify short-term project financing with reasonable terms.
By attacking Bolt Diesel's challenges from all angles — legal and debt restructuring support from The Lane Law Firm and Bob Wells — we were able to put a comprehensive, multi-faceted solution into place that put Bolt Diesel back in business.
The Lane Law Firm Wiped Out 90% of Bolt Diesel's Debt, Enabling Mr. Rayos to Start Fresh.
Thanks to this multi-faceted approach, The Lane Law Firm was able to wipe out 90% of Bolt Diesel's debt. When Mr. Rayos came to us, the business had $362,358.86 in total debt. After filing for Chapter 11, Subchapter 5 bankruptcy with The Lane Law Firm, Bolt Diesel ended the process with a responsibility to pay just $32,820.60 in claims.
We were able to wipe out $329,538.26 in debt for Bolt Diesel — 90% of the business's total debt.
And that's not all. In addition to eliminating 90% of the business's total debt, Bolt Diesel's work with short-term contract CFO Bob Wells ensured that Mr. Rayos was able to keep 100% equity in his business. He was also able to meet his reporting requirements to the bankruptcy trustee accurately, and on a timely basis, until the court’s decision was final. This is key to a successful conclusion.
As a result of this work, Bolt Diesel was able to obtain non-traditional financing. This funding made it possible for them to secure municipal contracts that were previously out of reach, and develop a business plan that will keep moving the company forward. Any remaining debt Bolt Diesel does have is on a manageable repayment plan that will not impact the business's long-term success.
Chapter 11, Subchapter 5 Bankruptcy Helps Small Businesses in Texas Escape Predatory Lenders
In West Texas and across the state, small businesses pursued by predatory lenders have options. Like Bolt Diesel, you don't have to stand for the harassing calls of predatory lenders. Chapter 11, Subchapter 5 bankruptcy is a legal option that helps erase significant amounts of debt, and supports small businesses with a plan to repay any outstanding balance with a clear, reasonable repayment plan.
Bankruptcy can sound like giving up. But when you work with an experienced law firm that understands your business and your goals, your business can see results similar to those we delivered for Bolt Diesel. If your small business is struggling, don't wait — help is available, and it doesn't have to mean closing your doors! Contact The Lane Law Firm.