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Nonprofit Insolvency

Just like for-profit corporations, nonprofits are susceptible to financial woes including insolvency. During periods of economic downturn, nonprofits face reductions in donations due to reduced corporate and personal contributions.

In addition to decreased donations, nonprofits have to operate on a reduced budget and down-sized staff during recessionary times. To sustain a nonprofit during such challenging economic periods may require a workout with creditors (either through a consensual out-of-court workout or through a Chapter 11 reorganization bankruptcy).

The attorneys of DelCotto Law Group PLLC have experience in restructuring nonprofits, both in out-of-court restructurings and Chapter 11 bankruptcy proceedings. DelCotto Law Group PLLC can assist a nonprofit in analyzing and addressing key issues including, but not limited to:

  • Wind-down of nonprofit
  • Fiduciary duties
  • What nonprofit assets can be sold?
  • What assets are included in the property of the bankruptcy estate?
  • Chapter 11 plan feasibility
  • Does the Absolute Priority Rule apply?

Non-profit organizations are businesses, too. They simply don’t have a profit motive or shareholders.  And they often make our world a better place by assisting those in need, adding culture to our society and in many other ways. Orchestras are a recent example of organizations that may be nonprofit but have seen financial turmoil due to the economic recession. In years past, numerous nonprofit religious entities sought bankruptcy relief to deal with claims of sexual abuse. There are certain requirements applicable to all businesses which seek to file bankruptcy, and nonprofits are subject to the same requirements.

While there are benefits to restructuring debts and continuing to operate or transferring the nonprofit’s assets to another entity, there are complex restrictions for a nonprofit’s property transfers. There are often issues regarding exactly what property a nonprofit owns. Funds could be held in trust or be subject to various restrictions. Nonprofits in the health care arena may own licenses or have contracts with the government or insurance companies that are not freely transferable. In general, filing a bankruptcy does not expand property rights, it simply provides a way to protect and maximize the value of property to benefit creditors.

Early Analysis Is Critical. Call Us Today.

Just like any other business, analyzing such issues for a nonprofit entity is often the most crucial part of any process to extricate the business from financial distress. Our team has been involved with nonprofit entities in various business areas and can help assess what options will best serve the needs of a distressed nonprofit entity. Call 859-231-5800 or email us to initiate a consultation.

We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.