Thompson Law Group, P.C.

Volunteer fire company seeks reorganization in bankruptcy

It may not be generally known that bankruptcy relief can be extended to public-service entities such as volunteer fire companies. Those kinds of nonprofit organizations can, however, obtain relief from creditors and an opportunity to reorganize in a Chapter 11 bankruptcy. A recent example is the filing by a Pennsylvania volunteer fire company called the Conneaut Lake Volunteer Fire Department.

The fire department for the borough of Conneaut Lake and portions of Sadsbury Township filed for protection in the federal bankruptcy court in January when it faced a pending foreclosure action by a bank and other creditors. The filing at that time constituted an automatic stay, which is a bankruptcy court's order directed to all creditors instructing them to cease and desist from all collection activities under penalty of law. The company runs a social club that has a restaurant and liquor license that is adjacent to the fire house. The mortgage lien likely covers all of the land owned by the company.

The federal bankruptcy judge recently gave the fire department an extension until this fall to file its reorganization plan and its disclosure statement. These are two vital documents in a Chapter 11. The first gives creditors the proposed plan of action for the debtor's reorganization, and the second document is a disclosure by the debtor of its financial status and various obligations and assets. The creditors can compare the reorganization plan with the disclosure statement to determine whether they believe that the reorganization is feasible.

The Conneaut Lake Volunteer Fire Department has continued to function normally and to provide fire protection during the bankruptcy. Its main creditor is the Mercer County State Bank, which has alleged mortgage debt, interest and penalties of $1.6 million. The terms and repayment of that debt may be modified to some extent if it will lead to a financially strengthened organization that can pay its bills. In Pennsylvania, volunteer fire companies are commonly located in rural areas throughout the state where they perform vital fire protection services without generally being a great financial burden to their localities.

Source: meadvilletribune.com, "Conneaut Lake Volunteer Fire Department given until fall to submit financial reorganization plan", Keith Gushard, Aug. 19, 2016

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