Bankruptcy & Insolvency Notes Enforcement

Most business loans from banks or other lending institutions require the borrower to sign a promissory note that is often secured by the business’s assets. If the company lacks adequate assets to properly secure a loan, the lender may require that one or more of the business owners provide a personal guarantee. This guarantee allows the lender to seek payment from the business owner should the company become insolvent or file for bankruptcy.

A promissory note is a written contract promising to repay a loan that has been signed by the borrower. It allows for the enforcement of the borrower’s promise to pay the lender. The notes need not contain any specific language, but they usually include such items as the amount owed the lender, the interest rate to be charged, the due date for payments, and whether the borrower has offered any security for the note.

One of the standard forms of security for promissory notes is a pledge of real property in the form of a mortgage or a deed of trust. Another common method used by businesses to secure a promissory note is the pledge of assets such as business equipment or inventory.

When a business lacks adequate real property or business assets to serve as security for a promissory note, one or more of its owners may offer a personal guarantee. A personal guarantee is an agreement allowing a lender to go after the personal assets of an owner if the company defaults on its loan. In some cases, the personal guarantee includes a security interest in the owner’s property, usually in the form of a lien, that makes it easier to seek enforcement in the event of a default.

If the business faces insolvency and needs to liquidate using Chapter 7 bankruptcy, its assets will be turned over to the bankruptcy trustee. The trustee will then distribute them among the business’s creditors, including those holding promissory notes, on a pro-rata basis. If the business had few assets when it declared Chapter 7 bankruptcy, it is likely the holder of an unsecured promissory note will only receive a fraction of what it is owed. Secured creditors may petition the trustee to seize the secured assets.

Businesses that file for Chapter 11 bankruptcy seek to reorganize in a manner that will allow them to continue their operations while offering partial payment to unsecured lenders, like the holders of unsecured promissory notes. While Chapter 11 provides businesses with an automatic stay that stops all proceedings against the debtor until a restructuring plan is approved, secured creditors may seek relief from the stay to foreclose on the secured assets.

Business bankruptcy provides little protection for individuals who have personally guaranteed promissory notes because the lender can still look to the guarantor to repay the loan. Additionally, in some situations, the bankruptcy trustee will view the guarantee as a business asset and look to the guarantor’s personal assets to repay creditors.

However, most personal guarantees to repay business loans qualify for discharge if the business owner files for personal bankruptcy. In cases where the personal guarantee included a lien on the owner’s personal property, the lien will not be discharged by the personal bankruptcy and is still subject to enforcement by the lender.

The attorneys at Thomas H. Curran Associates are experienced in representing creditors in business bankruptcy proceedings and can ensure that lenders holding promissory notes receive the largest possible payout. Additionally, our attorneys can assist lenders in the drafting of enforceable promissory notes that provide the highest level of protection to creditors in a business bankruptcy proceeding.

Foreclosure of residential and commercial real property varies by state because each one has its own laws governing the process and addressing such issues as the property owner’s options for bringing the loan current and the process for selling the property. Generally, foreclosures fall into two categories: (i) by judicial process or (ii) by statutory power of sale contained in the mortgage. Thomas H. Curran Associates mortgage foreclosure lawyers have conducted foreclosures under both methods in various states. The Firm has also served as foreclosure defense attorneys in certain cases. In many cases, Thomas H. Curran Associates’s lawyers also represent lenders and servicers in bankruptcy courts in cases that arise in connection with foreclosure proceedings. Individuals and businesses facing foreclosure should seek experienced legal counsel as early as possible to understand their rights, evaluate available options, and determine whether negotiation, litigation, or other legal remedies may help protect their interests.

In states that require judicial foreclosure, mortgagees must commence a foreclosure lawsuit asking the court for the right to sell the property in satisfaction of the underlying debt. Throughout the litigation, both lenders and borrowers may face complex procedural and evidentiary issues that require experienced legal representation. Judicial foreclosure is the primary method of foreclosure used in 22 states, including Florida, Illinois, New Jersey, New York, and Pennsylvania. When the state allows for it, the lender’s attorneys may ask the court to grant it a deficiency judgment if selling the property is not expected to fully pay off the borrower’s debt. If granted, the borrower will remain responsible for any unpaid debt following the foreclosure sale. Alternatively, there are 28 states that allow for non-judicial foreclosures, including Massachusetts, California, Texas, and Georgia. In those states, the mortgage foreclosure process is typically faster because it does not originate through the courts unless the borrower chooses to sue the lender.

The last significant U.S. economic downtown that began in or around 2008 stemmed in large part from the excesses of the home mortgage sector of our economy and related substandard lending practices. The resulting nationwide wave of foreclosures spawned years of litigation challenging mortgagees and lenders and servicers’ right to foreclose mortgages. This foreclosure litigation resulted in many novel legal theories to prevent foreclosure. Thomas H. Curran Associates’s lawyers have years of experience successfully litigating an array of mortgage foreclosure cases that raised numerous complex and novel defenses across multiple jurisdictions in both state courts and bankruptcy courts, with some cases resulting in complex appellate proceedings. The Firm also has deep expertise in ancillary relief such as receiverships and injunction proceedings that are sometimes required to secure the property during the foreclosure process.

By virtue of their broad and deep foreclosure and bankruptcy expertise, the attorneys at Thomas H. Curran Associates are uniquely positioned to advise and represent mortgage lenders and servicers, as well as borrowers in some cases, with their foreclosure proceedings. Our lawyers seek to utilize their experience advocating on behalf of clients to provide them with quality representation while assisting them in prosecuting or defending their foreclosure proceedings in the fastest, most efficient manner.