Trucking Company Chapter 11

Practical insights from powerhouse attorney, author and speaker Bradley Bailyn.

At first glance, it’s easy to assume the trucking industry could be somewhat recession-proof. After all, goods need to be moved regardless of how the rest of the economy is doing. Unfortunately, the trucking industry isn’t immune to tough economic times. In fact, the industry faces unique costs and regulatory challenges that don’t hamper most other industries. It is enough to have a trucking company owner I spoke with recently to consider leaving the industry entirely.

His concerns were simple: despite decent revenue he feels his business has multiple pain points. Strict regulations have hampered production while rising costs have eaten into profits. He’s left with unwieldy equipment and fleet leases and a business structure that isn’t built to survive. In other words, he needs help. Luckily, a Chapter 11 bankruptcy filing might give him the chance he needs to restructure his flailing transportation company into a profitable enterprise.

The possibility of a fresh start seemed to be music to the man’s ears, but he was plainly skeptical. Outside of the stigma tied to a bankruptcy filing, he was concerned with other potential issues that a bankruptcy might not fix. Like most people I speak with, he had a lot of questions:

  • Could a Chapter 11 filing help him avoid paying judgments against his company?
  • Is there any way to lower his tax bill during the bankruptcy process?
  • Would a Chapter 11 filing allow him to continue operating while he restructures?
  • Is it possible to restructure without filing for bankruptcy protection?

He had a lot of questions. Luckily for him, I love bankruptcy questions. If you have questions about how the protections of a bankruptcy filing might help your business, contact the Bailyn Law Firm and set up a consultation.

Volatility in the Transportation Industry

Each year, the hauling capacity of thousands of truck drivers is taken off the road due to fleets going out of business. According to Avondale Partners, a company that tracks bankruptcies filings among trucking firms each year, well over 1,000 truckers lose their job each quarter due to trucking company closings. And while most of these closures are for smaller companies, the cumulative effect is the same as if multi-billion dollar companies are going under each year.

There was hope in 2016 that growth in industries that are key customers for the trucking industry could help boost fleets across the country. Unfortunately, this hasn’t been the case. Despite some positive movements in the economy, operative revenue has stagnated or fallen due to the rising costs of new equipment and rising wage demands. Additionally, many carriers are finding that new regulations like electronic logging devices and hours of service rules are cutting into productivity. The spiking rates of insurance for carriers large and small have been another cause of concern.

These problems only add to many of the issues common in the transportation industry like costly judgments, tax debt, and expensive leases. Despite these challenges, the steady streams of exits from the industry present profitable opportunities for the trucking companies that stick around. An effective restructuring could turn your struggling company from barely staying afloat to running in the black. But as I told the owner I mentioned above, it all starts with the filing of a Chapter 11 bankruptcy petition.

The Road to Restructuring

The primary goal of a Chapter 11 bankruptcy is to allow your company to restructure and come out on the other side with the ability to operate profitably. That goal isn’t realistic, though, unless you are able to keep your business running during the transition. Your bankruptcy case will take years to complete, but thankfully you will be able to continue operating like normal during the entire process. In fact, you can stave off disaster in the short-term thanks to what is known as the automatic bankruptcy stay. From the moment that your company files for bankruptcy, it is protected by the automatic stay. The stay halts all collection efforts against. This includes eviction actions and even repossession efforts. While these collection actions are stopped, you will have a chance to work out a plan with your creditors that lets you continue operating while still satisfying some of your debts.

Filing for bankruptcy isn’t magic, though. You won’t be successful by filing alone; the key is to develop a strategy for restructuring your company in a way that allows to successfully operate once your bankruptcy is over. To do that, you’ll need a plan. That’s something I can help you with. As a bankruptcy attorney, my role is far more involved than simply filing documents on your behalf. Together, we can look at how restructuring your business and working with your creditors can solve the issues plaguing your company. To do that, you’ll need to address all of your obligations to creditors, tax authorities, and employees.

Renegotiating with Creditors

If your business has been having financial difficulties, it is likely that you’ve already encountered issues with your major creditors. Many trucking companies will begin to retract their business as things slow down. This can mean layoffs, office closures, and more. But even laying off employees might not be enough if you are saddled with equipment you no longer need. Many trucking leases are long-term, and paying for trucks you don’t need is a one-way ticket to financial collapse.

If you are facing the threat of having your leased equipment repossessed, the automatic stay I mentioned previously will halt those lawsuits in their tracks. But to succeed long term, you are likely going to need to continue leasing equipment to stay operational. That means potentially negotiating with your creditors regarding your debt as well as the terms of your lease going forward.

Thankfully, Chapter 11 bankruptcy is the ideal setting for these negotiations. During your bankruptcy, you will have a chance to negotiate your debt with your creditors. You have some leverage; it’s likely that the court will agree to a plan that lowers the amount you owe to your creditors even over their objections. What’s more, if your bankruptcy ultimately fails and you are forced to liquidate everything, they could wind up getting nothing. What’s more, your creditor probably wants you to stay in business – they need customers too, remember? This leverage may give you and your New York bankruptcy attorney the chance to restructure your debt with your creditors. That could mean forgiving some of what is owed or cutting interest rates. It can also lead to the modification of your lease going forward to give you terms that you can live with. These negotiations can be tough, and if you have multiple creditors they can be complicated .That’s what makes hiring the right New York bankruptcy attorney so important.

Tax Debt

Another issue that haunts businesses in every sector is tax debt. The good news is that, much like other creditors, the automatic stay applies to the IRS and New York Tax Authority. The bad news is that your tax debt is never dischargeable through a bankruptcy proceeding. But that doesn’t mean you won’t get any relief from filing for bankruptcy protections!

When you file for Chapter 11 bankruptcy, you will halt any collection activities that tax authorities are currently undertaking. This includes tax levies and seizures. If your business was shuttered by the state due to nonpayment of taxes, you can re-open your doors simply by filing for bankruptcy protection.

Despite your inability to discharge your tax debt, often times tax authorities will negotiate with you like any other creditor. For starters, if your tax debt is so overwhelming that there’s no chance you can pay it off and continue to operate, the tax authorities might agree to a deal. In some cases, that can look like a structured repayment plan. In others, it can be a partial forgiveness of the taxes you owe. An experienced New York Bankruptcy attorney can help you work with the IRS and state tax authority with the goal of keeping your business running – and paying taxes for years to come.

Judgment Creditors

Another issue that troubles many trucking companies is liens from judgments entered against them. Trucking companies often face legal issues stemming from vehicle collisions as well as suits over employment disagreements. A judgment creditor is essentially a non-secured creditor; the automatic stay will prevent them from collecting against you. It’s also possible to clear judgment liens against your company and even wipe out judgment debt with a successful bankruptcy filing.

And while many filers will seek to simply avoid a judgment, it’s possible the court will require that you pay some portion of the judgment as part of the bankruptcy plan. Because of this, it’s possible to negotiate with your judgment creditors just like you would anyone else. Older judgments are especially ripe for this type of negotiating, as its possible years’ worth of interest could have accumulated. While your creditor will obviously want all of their money, many are more willing to let go of interest payments than they are principal amounts.

Many times, it’s impossible to reach an agreement with a judgment creditor. In those cases, your New York bankruptcy attorney can seek to have a plan approved that reduces or eliminates the judgment entirely.

Restructuring Outside of Bankruptcy

One of the most common questions I get is “can’t I do all of this without filing for bankruptcy?” The case of the trucking company owner I mentioned above was no different. While the end result of restructuring sounded appealing, he was wary of filing bankruptcy. I was up front with him, as I always am.

The short answer is, yes, it is possible to restructure your business without filing for bankruptcy. In fact, I routinely handle these out-of-court structured settlements for clients. In some cases, it’s a better option than filing for bankruptcy. But the big issue is that without the automatic stay and other bankruptcy protections, you lose a lot of your leverage. It only takes one recalcitrant creditor to mess up a negotiated restructuring. The more creditors you have, the more likely it is one of them will throw a wrench in the works.

That’s why in many cases I recommend filing for Chapter 11 bankruptcy. The automatic stay is powerful; it will bring creditors to the negotiating table that otherwise wouldn’t give you the time of day. In many instances, it is the only avenue for a successful restructuring.

I always enjoy sharing my knowledge with New York business owners, and that was certainly the case when I spoke with the owner of the trucking company I mentioned above. He was concerned for the health of his business, but I could tell he was relieved that he had a potential route to keeping his business open and running for years to come. If you would like to discuss how a Chapter 11 bankruptcy filing might help your business survive, give me a call.