Is Red Lobster Doomed?
Ready for a lobster dinner but worried your favorite Red Lobster location might not be around next time you order lobster rolls? You’re not alone now that the seafood giant might be filing for bankruptcy, a concerning trend with large corporations filing for bankruptcy in record numbers for both Chapter 7 bankruptcy and Chapter 11 bankruptcy. Let’s review the bankruptcy process, including the 341 meeting of creditors.
What does this mean for Red Lobster, and what can we learn from the rise in bankruptcy filings in general?
Key Points:
- Red Lobster, the popular seafood chain, is currently facing financial challenges as it considers filing for Chapter 11 bankruptcy.
- Chapter 11 bankruptcies have surged by seventy-two percent, while personal bankruptcy filings have increased sixteen percent.
- Chapter 7 bankruptcy, when filed for a business, means the company is closing permanently, whereas, with Chapter 11, the business remains open.
Who Wants Lobster for Dinner Tonight?
The good ol’ days of me visiting Red Lobster. There was a Red Lobster back in the day, within walking distance of my office, but I rarely went for lunch. However, when I was teaching Business Law in Miami, some semesters, class was scheduled on Thursdays from 6:30 to 9:30 p.m. At the end of the week, to decompress, I would stop at the Red Lobster near the university and order a lobster pizza with a Heineken.
Of course, don’t forget the lobster rolls!
But now, it’s possible I can’t take another walk down memory lane with reports that Red Lobster is considering filing for bankruptcy. This could have a significant financial impact with 649 locations in the United States.
How Filing for Bankruptcy Could Help Red Lobster
If Red Lobster is going to keep its doors open, it would be with a Chapter 11 bankruptcy. This would pave the way for Red Lobster to restructure its debt. Unfortunately, there has been a substantial rise in Chapter 11 filings.
There haven’t been any reports regarding a Chapter 7 bankruptcy filing, as that would mean that Red Lobster is permanently closing its doors. While not likely, large corporations rarely file for Chapter 7 bankruptcy, although we did see that with Pier One Imports.
What is Chapter 7 Bankruptcy
An individual or a business can file Chapter 7 bankruptcy. Chapter 7 bankruptcy is commonly referred to as a liquidation and is the most common type of bankruptcy filed. However, the term “liquidation” can be misleading.
A liquidation implies that a debtor will lose their assets by filing Chapter 7 bankruptcy. But that is not necessarily the case. Whether a debtor can keep certain assets would determine the exemptions offered in that state. Exemptions protect debtors’ assets when filing for bankruptcy.
Which Red Lobster Locations Are Closing? Here’s the List!
For example, in Florida, the exemption for homestead property is unlimited. I pointed out this in Rudy Giuliani’s bankruptcy filing, where he claims he resides in Florida and that his $3 million condo is protected from creditors. You can read that blog post below.
However, passing state lines into Georgia would mean the homestead exemption is $21,500. So always make sure to know what your state’s exemptions are.
So, whether a debtor would have to liquidate assets or not when filing for Chapter 7 bankruptcy would depend on the asset’s value and the exemptions.
The Chapter 7 Bankruptcy Process
With Chapter 7 bankruptcy, the process is simple. Once the bankruptcy petition is filed, the debtor attends a 341 Meeting of Creditors with the trustee, who will ask basic questions. You can learn more about the 341 Meeting of Creditors, including what questions you are likely to be asked via the link below.
The 341 meeting of creditors is approximately thirty days after the petition has been filed. Generally, there are no additional hearings. Sixty to ninety days later, the Order of Discharge is signed by the judge if the bankruptcy has been approved.
To learn more about the Order of Discharge, read this blog post: Does Filing for Bankruptcy Wipe Out My Mortgage?
Which Debts Can Be Eliminated with Chapter 7 Bankruptcy
Chapter 7 bankruptcy will generally wipe out unsecured debt such as credit cards, medical bills, and personal loans. However, not all unsecured debt is eliminated with Chapter 7 bankruptcy.
Common exceptions include student loans, Domestic Support Obligations known as DSOs, which include child support and alimony, and tax debt, which is usually not dischargeable in bankruptcy.
You can read more about which debts cannot be eliminated in bankruptcy with this blog post: Criminal Fraud and Bankruptcy.
What is Chapter 11 Bankruptcy?
Like Chapter 7, Chapter 11 bankruptcy can be filed by an individual or a business. However, when a company files Chapter 11 bankruptcy, its goal is to keep the business running. With Chapter 7, the business is closing permanently.
Chapter 11 bankruptcy is known as a reorganization. Whether a business or an individual, monthly payments are made through the bankruptcy plan. The amount paid, of course, depends on the case’s specific facts.
Usually, Chapter 11 is associated with businesses, but if it applies to an individual, it is a high-wealth individual. If an individual files Chapter 11, they didn’t qualify for Chapter 13, which has debt limits.
For example, the Chapter 13 debt limits are $1,395,875 for secured debts, while for unsecured debt, the limits are $465,275. These limits adjust every three years to account for inflation, with the following change due next year in April 2025.
Are you considering filing for bankruptcy and have a question to post in the Reader’s Question Forum? Then email me at alex@bankruptcy.blog.
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