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  4.  » What to know about the debt in possession process as a hotelier

What to know about the debt in possession process as a hotelier

As a hotel owner, you likely don’t need anyone to remind you of how destructive natural disasters, medical crises and issues with the economy can significantly impact your operations. These different phenomena may not only cause physical damage to your property, rendering it uninhabitable, but these factors may also give way to an inability to meet your financial obligations.

If you perform a basic internet search of how different crises have impacted the hospitality industry, you’ll quickly realize that hotels often find themselves struggling amidst all of this. That’s the current state of affairs that many hoteliers find themselves in now. There are options that you can pursue to rescue your figurative “sinking ship.”

What debt relief option do hoteliers often use?

Many hotel owners weigh different debt relief options before ultimately deciding to pursue a Chapter 11 bankruptcy. As you may be aware, coming up with a reorganization plan is key to the Chapter 11 bankruptcy process.

Debtors can generally lease, sell or use their property as they go through the bankruptcy process unless the court states otherwise. There are limits, though, on how any cash collateral that exists may be used. The court or the secured party must sign off the request to utilize it.

Limits that bankruptcy laws place on what a hotelier can do with cash collateral are important. It may include any monies collected as rent, room payments and associated occupancy fees, and any other credit, payments, accounts or fees that a hotel takes in. Creditors generally must file a motion with the court to protect their financial interests in such situations.

As you might imagine, as a hotel owner, it may be particularly challenging to cover your operational costs if any profits you make are subject to recovery by your creditor. You’ll need to carefully weigh this when deciding whether to become a debtor in possession during the Chapter 11 bankruptcy process. There may be other options that you can pursue depending on the value of your hotel, outstanding debts and the end result you’re looking to achieve.