In advance of a new law, experts predicted nearly three times
the normal amount of bankruptcies
Gilroy – Months after turning the key on their businesses for the last time, the owners of J.R. Brewski’s and Old City Hall Restaurant joined a record number of business owners around the country last week and declared bankruptcy. The filings for protection came on the last day before new federal laws took effect making it harder to avoid repaying creditors.
Glen Gurries, the former owner of Old City Hall Restaurant at the corner of Sixth and Monterey streets, shuttered his doors in December 2004. Bankruptcy papers filed Oct. 15 state that he left a $586,172 trail of debt leading to 26 creditors. Gurries owes the largest share – $121,940 – to Léal Vineyards, in Hollister. Gurries took Frank Léal on as his partner three months before closing his doors.
In a Dispatch story at the time, Léal said he hoped to inject new life into the restaurant by using wines from his family vineyard and other local producers as the backbone of a new wine list, similar to how many restaurants in Napa Valley have built their menus.
A year later, Léal finds himself among more than two dozen creditors hoping to recoup money from the failed venture.
Local attorney Joe Thompson, who represents the Léals in a breach of contract case against Gurries and Old City Hall, said the bankruptcy announcement came as no shock.
“I predicted this for a long time because there was a wealth of creditors and a dearth of assets,” Thompson said. “That’s usually a sign of insolvency.”
It remains unclear how much money will remain for Léal and other creditors, however, after state and federal agencies lay claim to proceeds from the bankruptcy. Gurries owes the IRS $106,130 and $65,977 to the state Franchise Tax Board, but reported less than $13,000 in assets in his Chapter 7 bankruptcy filing.
Gurries did not return a request for comment passed to him through Susan Reyes, his San Francisco-based attorney. She would not say if her client filed bankruptcy to beat the Oct. 15 filing deadline before stringent new laws take effect. She only stated that “the restaurant was for sale but the sale did not go through.”
The new law – the most sweeping reform of the U.S. Bankruptcy Code in decades – sets new limits on personal bankruptcy filings and requires people to get professional credit counseling before they file petitions. It prohibits most filers with above-average income from filing Chapter 7 petitions that allow debts to be wiped out. Instead, people deemed by a “means test” to have at least $100 a month left over after paying certain debts and expenses will have to submit a five-year repayment plan under the more restrictive Chapter 13.
Some experts predicted that bankruptcy courts last week would see a flood of 300,000 filings nearly three times the normal amount.
Jeff Parsons, owner of now-shuttered J.R. Brewski’s, was among the thousands who filed for bankruptcy on the deadline date. Parsons, who did not return calls for comment, filed for Chapter 7 protection both as an individual and under his former restaurant’s name.
His Oct. 15 filings do not list specific amounts owed to creditors, but notes that debts range from $1,000,001 up to $10 million, assets range from $100,001 to $500,000. The filings list 58 creditors.
Chris Vanni, of Vanni Investment Properties, did not expect to receive the $70,000 to $80,000 in lease payments Parsons owes for the restaurant space he occupied at 8080 Santa Teresa Blvd.
“Landlords are typically at the bottom of the line (of creditors),” Vanni said. “We usually see cents on the dollar.”
He said, however, that he has already begun meeting with four or five larger Bay Area restaurant groups and hopes to lease the space in coming months. Vanni predicted the future tenant would apply for a new liquor license, a process that lasts one to three months, since Parsons’ liquor license will likely be tied up in wrangling among creditors.
Parsons closed his restaurant at the end of July after nearly three years at the high-end of Gilroy’s bar scene.
“Jeff made a really good go of it,” Vanni said. “He lasted longer than the average (restaurant) … He definitely tried working things out here. I think it was one of those unfortunate circumstances.”
Both Gurries and Parsons are scheduled to meet with creditors in November.
Two bankruptcies leave host of local creditors
• City of Gilroy
• EPC Water Softener Service
• Firato Cleaning Service
• Gilroy Dispatch
• Pinnacle Healthcare
• South Valley Disposal
• Vanni Investment Properties
Old City Hall
• CBSJ Collections
• Léal Vineyards
• Supreme Interiors
• Tone & Tone