{"id":879,"date":"2020-10-16T17:59:14","date_gmt":"2020-10-16T17:59:14","guid":{"rendered":"https:\/\/businessreorganizationsandiego.com\/?p=879"},"modified":"2026-07-21T20:48:27","modified_gmt":"2026-07-21T20:48:27","slug":"sbra-case-study-restaurant","status":"publish","type":"post","link":"https:\/\/businessreorganizationsandiego.com\/es\/2020\/10\/sbra-case-study-restaurant\/","title":{"rendered":"SBRA Case Study: California Restaurant Owner"},"content":{"rendered":"

Written by Steven E. Cowen, Esq.<\/strong>
Attorney, Debt Solution Law Group | State Bar of California #132988 | Full attorney bio \u2192<\/a><\/p>\n\n\n\n

The Business Owner’s Situation<\/h2>\n\n\n\n

Let\u2019s take a look at how the SBRA works in a situation of a hypothetical California restaurant owner with the following financial circumstances.  In this blog, we do cover a lot of financial data quickly.  Don\u2019t worry about taking notes, the full text of this presentation can also be reviewed in the written blog section of the website.<\/p>\n\n\n\n

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  1. Owner owns a home. There are two mortgages against it. First mortgage of $300,000. A second mortgage of $200,000. 15 year loan. The home is worth $400,000. The entire $200,000 loan was put into the business.<\/li>\n\n\n\n
  2. The restaurant has a contract to purchase equipment.  Original contract: $150,000, 84 months at 12%. $105,848 owed with 57 months left on the contract.  Equipment only worth $20,000. <\/li>\n\n\n\n
  3. Five years ago, owner entered into a 10 year lease at two dollars per square foot. The space is currently renting for four dollars per square foot. Because of Covid shut down orders, owner is six months behind on his $5000 a month rent.<\/li>\n\n\n\n
  4. Restaurant leases furniture.<\/li>\n\n\n\n
  5. Owner received an emergency SBA loan of $150,000 six months ago. 45 days ago, owner paid Discover credit card $75,000 on a pre-existing credit card debt. 100 days ago, owner repaid his brother $50,000 but then borrowed from brother again $40,000.<\/li>\n\n\n\n
  6. Owner has $100,000 in other credit card debt.<\/li>\n<\/ol>\n\n\n\n

    <\/p>\n\n\n\n

    Monthly Payments Before Reorganization<\/h2>\n\n\n\n

    Owner\u2019s monthly payments:<\/p>\n\n\n\n

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    1. Monthly payment on the first mortgage $1800. Monthly payment on the second mortgage $1688.<\/li>\n\n\n\n
    2. Equipment purchase contract:  Monthly payment: $2,933. Interest rate: 12%. Current balance: $105,848. Remaining months: 57. Equipment value: $20,000.<\/li>\n\n\n\n
    3. Space Lease 1: $5000 a month.<\/li>\n\n\n\n
    4. Furniture lease: $750 a month.<\/li>\n\n\n\n
    5. SBA loan monthly payment $1266.<\/li>\n\n\n\n
    6. Credit cards. Monthly payment: $1501. Interest rate: 15%. Current balance: $100,000. Remaining months: 144.<\/li>\n<\/ol>\n\n\n\n

      <\/p>\n\n\n\n

      Total Debt Before Filing<\/h2>\n\n\n\n

      Total monthly payments: $14,938.<\/p>\n\n\n\n

      Total debt: $855,848 plus $30,000 in past due rent plus the $75,000 that will be owed once again to Discover since Discover will have to disgorge the payment received as it was an avoidable preferential payment. Total: $960,848.<\/p>\n\n\n\n

      <\/p>\n\n\n\n

      Applying the SBRA Rules<\/h2>\n\n\n\n

      Now, let\u2019s apply the rules under the SBRA.  And remember, these are rules, not wishes or starting points for negotiation.  They are rules. <\/p>\n\n\n\n

      Owner\u2019s new monthly payments:<\/p>\n\n\n\n

      Item 1 \u2014 Home Loans<\/h3>\n\n\n\n

      Let\u2019s start with the home loans.  Because the house is worth less than the combined value of both loans, the second mortgage can be bifurcated into secured and unsecured portions. $100,000 of the second mortgage is secured. $100,000 is unsecured. Because the loan was used entirely for the business, the SBRA says that the terms of the loan can be modified. So we would propose modifying it as follows:  The unsecured portion of the second mortgage, $100,000, would be relegated to the pool of creditors that includes the SBA loan of $150,000 and the credit cards of $100,000.  The total unsecured debt, then, equals $350,000. For purposes of this hypothetical case study, assume that these unsecured creditors only receive $75,000 through the plan. We would propose modifying the $100,000 portion that is still secured as follows: extending the payment term to 30 years in reducing the interest rate to 3%.<\/p>\n\n\n\n