Businesses experience financial troubles and mortgage delinquencies in much the same way private citizens do. In the realms of finance and business law, this is known as defaulting on the business property mortgage. Lenders typically have a keen interest in recouping their loans, which prompts them to begin foreclosure proceedings after a certain amount of time has passed with no payments.
It is a common practice for businesses in financial distress to initiate bankruptcy proceedings when it loses the ability to pay its bills. Business owners can choose from two common types of bankruptcy to find a solution as briefly described below.
In a chapter 11 proceeding, the property owner essentially submits a plan to reorganize his or her debts. This will stop a foreclosure until the reorganization plan acquires court approval. In a chapter 7 bankruptcy, all of the business’s assets are liquidated (converted to cash) in order to pay off business debts. This includes business properties as well as other assets.
Sometimes, businesses in debt can forestall or prevent foreclosure by taking one of several actions. Aside from filing bankruptcy, which can stop a foreclosure, business owners can refinance, secure additional financing, use personal assets as collateral or seek a restraining order.
As you may already know, business law is quite complex, here in Arizona, and elsewhere in the U.S. To protect yourself and your business, it is always a good idea to discuss your options with an attorney experienced in business law and commercial properties. Doing so ensures that you have thoroughly explored all of the avenues available to you before you make a permanent decision.
Source: The Balance, “Foreclosures on Business Property,” Jean Murray, accessed Aug. 18, 2017